A doorstep loan is one of the most popular ways for people to borrow money here in the UK.
Your doorstep loan company gives you a loan and then one of their representatives comes to your house on a weekly basis to collect the repayments.
Now, this might sound like an easy and convenient way of taking out short-term finance, however, there are problems. Doorstep loans aren’t as tightly regulated by the Financial Conduct Authority (FCA) as payday loans and short terms loan.
And it’s because of the looser rules surrounding doorstep loans that the FCA have faced calls to investigate companies in the sector. Some campaigners want doorstep loans to be regulated like payday loans.
Why can doorstep loans be so bad for some people?
Because the FCA isn’t involved in the process, a doorstep loan provider has full control over:
- how much interest they can charge you,
- how long you have to repay the loan, and
- how much they charge you if you default on the loan.
This means, if you cannot afford to pay back the loan and you’ve borrowed money from a doorstep lender with sky-high charges and interest rates, you may end up spiralling deeper into debt.
What makes unsecured loans better than doorstep loans?
Certain types of unsecured loans are tightly governed by the FCA. Each loan company must be thoroughly assessed by the FCA before they can lend anyone any money. All lenders have to pass some pretty tough tests to win their licence. For your peace of mind, you can check whether the loan provider that you are using is FCA-authorised by searching for their registration number on the FCA website.
For unsecured payday loans and short-term loans, the FCA offers borrowers a number of important protections – “special rules” – including:
- You will not be charged more than £15 for defaulting on your loan,
- The amount you pay in interest and in fees cannot be more than the loan itself,
- The interest rate cannot be more than 0.8% per day, and
- You must undergo a comprehensive affordability check before having your loan application accepted.
What different types of unsecured loans are there?
There are many different types of unsecured loans that will suit a variety of different purposes, including:
Payday loans – Payday loans are one of the most common forms of short-term finance regulated by the FCA’s special rules. You borrow an agreed amount of money (usually under £1,000) and then you pay it off on your next payday. This is a great way to get access to the money you need when it is coming to the end of the month and you have an unexpected bill to pay.
Short-term loans – Short-term loans, also covered by the FCA’s special rules, offer borrowers the chance to pay their loan back over a period of up 12 months. You can normally borrow more money with this type of loan because of the longer repayment period.
If a borrower is worried about their ability to pay back a loan in full on their next payday, a short-term loan might be better because the monthly repayments are lower. However, please be aware that you pay more interest in total the longer you take out a loan.
Do you need a good credit score to take out an unsecured loan?
Many people dismiss the idea of taking out an unsecured loan because they have a poor credit score. They believe that having a poor credit score will mean that no company will want to lend money to them.
This is a mistake – many loan providers actually specialise in helping people with low credit scores find the loans they want that suit them and their lifestyles.
However, it is no secret that you will find better interest rates and more potential lenders if you have a higher credit score. That being said, the best way to raise your credit score is to take out loans and make all of the repayments on time and in full.
Get an unsecured loan with 786 Loans
If you’re looking for an unsecured loan, try 786 Loans. We are a loan broker, not a direct lender. This means that we work with hundreds of reputable, FCA-licenced lenders to find you a loan that suits you.
It all starts with your application form with us. We take your details and you tell us how much you would like to borrow, how long you would like to make the repayments for, your debit card number, your bank details, and whether or not you have a job. Then, we run both a credit and affordability check on you.
Once we’ve completed our checks, we package up and show your application to our network of lenders. They review your application against their own lending criteria and they then decide whether they would like to make you an offer.
The last stage is that we take all of their offers and then we show them to you for you to decide which, if any, you’d like to choose. This is all done in a few seconds – we won’t keep you waiting around for an answer.
You’re under no obligation to take any of the offers that we find of you. Also, this service is entirely free to use!
If you do decide to proceed with your loan, all you need to do is to sign your name on the lender’s online form. Once you’ve done that, your lender will normally transfer the money to your bank account, usually within an hour or so. It may take longer for you to receive your money if your bank is not a member of the Faster Payments scheme.
You have 14 days in which to cancel your loan. If you do, all you need to pay back is the amount you borrowed together with the interest incurred in the time before you took out your loan.
To get started, click here.