For some a door-step loan can be a quick, convenient short-term fix for their financial problems but for others it can lead to a spiral of debt that they struggle to get out of. In this blog we will examine the doorstep loan, what are it’s advantages and what are it’s disadvantages.
What is a doorstep loan?
A doorstep loan does essentially what it says on the tin, it will allow you to borrow money, which is then delivered to your doorstep. The process is of course slightly more complicated than that. Doorstep loans are designed to cover short-term emergency costs and therefore will only loan a relatively short amount, normally between £100 and £1,000, with a term of usually no more than one year.
A doorstep loan is not a payday loan
This is quite important and will be touched upon later. A doorstep loan can run from a month to a year whereas a payday loan is expected to be paid back on the next payday. This means that someone can have longer to pay back their debt.
Advantages of a doorstep loan.
If there weren’t some benefits to a doorstep loan, no one would do it. So, in the interest of transparency, this is what the Debt Advice Service see as the perceived benefits.
- Doorstep loans are often delivered and collected in cash which makes them easier for people that are struggling to get a banks account.
- Lenders can be more open to lending with people who are unemployed or have a poor credit rating.
- Rates are fixed, so you will know how much you will be paying back over the course of the loan.
Disadvantages to a doorstep loan
As with everything there are disadvantages to doorstep loans, and it is the choice of the individual to decide whether they feel the advantages outweigh the disadvantages.
- High interest rates – different lenders have different rates, but we found examples of everything from 9% APR to 1333% APR. This could result in a simple £200.00 loan costing you a total of £642.48 to pay back.
- Doorstep loans are classed as ‘home credit’ which means they weren’t subject to the same scrutiny that pay day loan companies were when the FCA reviewed the sector.
- You are faced with the loan company coming to your door on a regular basis looking for their repayment.
Our fear of a doorstep loan is the spiral it can create. The loan solves the short-term problem but then in the next week, two weeks, you need to find the money to pay the loan back. If you are struggling in the first place this has created an extra expense to afford. If you can’t you may default on something else and then you get another loan to cover that cost and all of a sudden you find yourself heading into deeper levels of debt.
Alternatives to a doorstep loan
Everyone’s situation is different and as such you may well find that not all of these suggestions are available to you, but perhaps one of these options might work for you.
Ask friends or family.
It is never easy to ask to borrow some money but if it is a relatively low amount and you have a good relationship with the person you are asking, then this could provide a good interest free way of covering an unexpected cost.
Use a credit card
There are credit cards available that are offering low rates of balance transfer and interest. These cards can be used to pay off expected one off cost or be used to consolidate your debt in one place.
A guarantor loan
A bit like asking a friend for cash or money this will very much depend on your relationship with those closest to you. A guarantor loan means that if you can’t get a loan, you can use someone who does have a good credit rating to guarantee your loan. This means that if you default they have to pay what they owe.
What to do if you are already spiraling into debt?
If you are already on the path to debt then a doorstep loan will only be a sticky plaster and is likely to make the situation worse in the long-term. If you are in debt then you might need to consider options like a debt management plan or an IVA. If you feel like this is you then speak to our team on 0800 254 5112 and talk to one of our debt specialists.
