Doorstep loans, as the name suggests, are a financial option that delivers cash directly to the doorstep. You can get the money at your home, office, or any other location of your choice. It may help you if you encounter an urgent cash need but cannot leave your home.
It could be due to mobility issues, cannot leave a small child behind or suffering from an injury. Similarly, engagements at the office leave limited scope to check out ATMs. In this case, the loan provider’s representative arrives at the home address and provides the amount requested.
Similarly, the same person arrives at the doors to receive the monthly instalment on the loan. Hence, these loans are also known as home collection loans. You don’t need to go anywhere to clear the dues. Instead, you need to be ready with the cash for the person to collect.
Moreover, you don’t need to worry about not having the documents or searching for them. Reveal any valid income source to qualify. It could be a salary slip/tax assessment/ part-time income, etc., to get the loan immediately. You don’t need to stress about the collateral or guarantor. According to the doorstep loan terms, you do not need alternative proof. It is unless one can repay the dues with their basic income. If you find it helpful, read ahead.
What do you mean by Home Collection Loans?
Home collection loans are a short-term cash option to receive cash at home for any specific emergency. When applying for the loan, know that the representative may visit your home or your doorstep. He does so to determine the affordability and provide cash in hand. You apply for the loan online by making a basic application. Soon after, you receive a basic quote stating the amount you may receive.
It is not the final quote. Instead, the loan provider sends one of his representatives to conduct further checks and provide the money you request. Always analyse the representative’s identity before providing any information to them.
The interest rates stay competitive on these small loans. It is because of no collateral, guarantor or even bank account necessity. Typically, you must repay the dues within 12 months in instalments. The repayments are easy to manage even with a basic income. You can split the repayable amount according to your affordability.
What terms should you know before seeking a home collection loan?
Like every standard lending operation, doorstep loans also have some basic terms that you must know. It will help you ensure an informed decision and avoid any surprises along the way. However, the terms and conditions may vary across providers. But the basic aspect remains the same.
- Don’t pay anything upfront,
You don’t need to pay the agent to provide the cash. Every cost is part of the loan agreement and must be paid in instalments. Most responsible loan providers do not demand an upfront fee on doorstep loans. It is even if you are applying with a bad credit history.
You don’t need to provide a payment to get a loan at low rates. Instead, you may get these bad credit loans from a direct lender by proving your affordability. Individuals with poor credit history may qualify if they can repay the dues.
- No one can force you to pay the loan
It is the one condition that you must know. No responsible loan provider forces you into paying the dues. It is a small loan with a small payout. Thus, a credit cannot force you to pay even if it releases a CCJ against you. He may do so in the event of non-repayment or to get his money back. If you are not in a position to pay, don’t pay.
- The agent must collect payment on the lender’s behalf
According to FCA rules, “all or most of the sums paid by the customer are to be collected by or on behalf of the loan provider. It could be from a home of a natural person who makes a payment to the lender on the loan.” However, he cannot collect payments against the wish of customer.
- Payments must be collected according to the agreement
Customers can expect the lender and the representative to collect payments on the specified dates. In this case, the representative must arrive on the spot according to the agreement only. Usually, customers can also request payment collection by informing the specific loan lender (FCA). It would help you avoid missing the payment unnecessarily.
- Affordability checks are a must.
Every UK-based responsible and legal loan company conducts affordability checks before approval. They analyse the income and other basic information as the process of the loan completion process. You cannot skip the mandatory checks.
These checks help identify the borrower’s potential to repay the dues. It assists one in getting the amount which you can repay comfortably. However, the process does not affect your credit score.
What are some possible risks of doorstep loans?
Just like some basic terms, you must know the other side of doorstep loans, too. It will help you be conscious while applying for the loan and avoid paying unnecessarily.
- Avoid making multiple loan applications
Applying for many applications at a time reveals a casual attitude towards the loan. It reveals the desperation over a responsible borrowing attitude. Hence, you may face immediate rejection in this case. It may thus affect your credit score, too.
How to avoid it:
Suppose you want to know multiple offers. Just pre-qualify or use the loan calculator. It will help you understand the approximate costs to expect.
- High interest rates and penalties
Doorstep loans share an APR of 1500%. It is higher than other short-term loans like payday loans. It is due to the cost of the representative visiting the home to pay and collect the payments. Apart from this, the loan providers charge high interest rates to mitigate the risk associated with a bad credit score.
How to avoid it:
However, you can fetch reduced interest by borrowing less than the required sum or a small repayment term. Here is how the repayment may change if you borrow £300 instead of £1100:
If you borrow £300 at an interest of 292% per annum and an APR of 1271% for 6 months, you pay 6 repayments of equal instalments of £96.39 and £578.36 in total. Here, late payments may affect the interest and total amount payable. For better assistance, check moneyhelper.org.uk.
Therefore, borrow only what you must to meet your needs. The more you apply for, the more interest you pay. It may lead to a debt trap if not managed well.
- Aggressive debt collection moves
Some loan companies may initiate threatening and aggressive moves to claim their money. It affects your mental peace and finances. Individuals with low income get caught in a debt cycle by borrowing another loan to repay the first one. Here, unregulated doorstep loan companies may invest efforts to get their money.
How to avoid it:
Thus, analyse and choose a firm that shares responsible lending policies. They would not force you into paying the dues. Instead, if you cannot pay, they may offer you alternative ways to clear the dues, like rescheduling, halting or paying the minimum on the loan. They will never claim the assets to recoup their loss.
- No transparency may confuse you
Unlike regulated and long-operating loan providers, some companies remain inquisitive about their policies. They may hesitate over the loan terms. It may lead you to pay more.
How to avoid it:
Therefore, always check whether the company is open about its policies. Ask questions to understand to determine the legitimacy of the firm. It will prevent you from partnering with fraudsters.
Bottom line
These are some terms and the probable risks associated with doorstep loans. Identify the requirements, pros and cons and approximate payments before applying. Analyse and cross-check the company’s identity before seeking a loan. It will help you avoid unnecessary payments and high interest rates. Always borrow only the amount that you need.
