Everything you should know about doorstep loans

Doorstep loans, also known as home collection loans, are small loans that you borrow to fund unforeseen expenses in case you do not have savings to fall back on. These loans can be applied by anyone, mostly common among the unemployed, and, unlike other loans, involve a meeting with one of the representatives of a lender you have applied to who hands and collects money on your doorstep. The sum is paltry, so you will be required to pay them back on the due date in a lump sum.

Doorstep loans are similar to payday loans. They have got their name in that money will be offered on your doorstep. Interest rates for these loans will be very high. In some cases, the APR can go as high as 1500%, which is much more than payday loans, with interest capped at 0.8% per day, although the FCA regulates them. The maximum amount you can avail yourself of £500. It is rare that any lender will make it to £700.

The current trends of doorstep loans

Very few lenders now provide doorstep loans. Most of the lending companies had to wind down their doorstep lending operations because their deals trapped people in a never-ending debt spiral. Over time, doorstep loans have earned the reputation of high-cost, short-term loans. It is always suggested to do some research before applying for these loans. Despite them being FCA-regulated, the chances of falling into debt are very high. Try to choose alternatives like:

• Credit cards

Instead of using these loans, you can use a credit card to borrow a small sum subject to these loans. The good part of using a credit card to finance emergencies is that you will have some time, called a grace period after your credit card bill is generated, which is enough time for you to arrange cash to clear your dues, and you will not have to pay interest, which is not the case with doorstep loans.

• Cash loans

There are many lenders that provide small cash loans up to worth £1,000. These loans are like payday loans and are sometimes advertised as small personal loans. Try to seek approval for these loans because they carry lower interest rates than urgent doorstep loans, which are quite expensive because of added fees.

Lenders will charge you extra fees for providing money on your doorstep, which can quickly add up the cost if the debt is to be paid back in fixed weekly instalments. However, it does not mean that you will throw your caution to the wind. Use online loan calculators to determine the projected cost and see if it is possible to get a less expensive deal.

• Loans for unemployed

Loans for the unemployed are another alternative to doorstep loans if you are applying for the without a job. Getting the nod for unemployed loans is quite difficult, but lenders can be ready to lend you money if you have passive income sources. In the absence of a side gig, your unemployment benefits will be regarded as your income.

• Bad credit loans

While payday loans are not subject to a credit score check, you may be indisposed to applying for them as they carry very high-interest rates. The fact is that payday loans are aimed at subprime borrowers only, so it is presumed that your credit score is not up to snuff.

You can still escape paying too much high interest on your loan by taking out bad credit loans. Compared to payday loans, you can get them at lower interest rates. However, they cannot be so affordable as your credit report is not stellar.

How can you get a doorstep loan at better interest rates?

If you are still looking to apply for a doorstep loan, it is always recommended to do a lot of research before putting in an application. Not so many are lenders for these loans, so you will not have many options to choose from.

Here are some of the ways how you can get these loans at the most competitive interest rates:

• Try to borrow a lower sum. Make sure you do not borrow more than you need as this can throw you into an endless circle of debt.
• Use online calculators to see the estimated cost. Bear in mind the actual cost will be much more than that. Suss out if your budget has the scope for paying off that much money.
• You will be told interest rates and associated fees in the loan agreement. You should carefully analyse whether you can make the total amount of the debt in one go. If not, you should immediately back out. It is always better not to borrow than to fall into debt.

You should try to stick to these key points even at the time of taking out other loans. Although lenders are supposed to run an affordability check, it does not mean that you will leave everything upon them. The onus of checking your affordability is always on you. It is not always possible to hold your lender responsible for granting you a loan that you cannot afford to pay back.

The bottom line

Doorstep loans are expensive, undoubtedly. As they are delivered to your doorstep, they will cost you a lot more money because of added fees. You should always try to avoid using doorstep service if you are not sure about your repaying capacity.

Instead, you should consider other alternatives. However, it is still important that you carefully assess your rapacity when you are seeking other alternatives. Research the market and choose a lender that lends money at a lower interest rate.

It is always advisable to improve your credit score. Try to pay off all your bills on time. Make sure you do not max out your credit card. Keep the utilisation ratio as little as 30%. Pay off your credit card balance on time in full. When your credit score is good, you will more likely be able to borrow money at lower interest rates.