For people on the benefits of experiencing a financial emergency, door to door loans often seems like the only option. But there are a number of trusted payday and short-term loan providers which specialise in lending to people on benefits – particularly those who receive working tax credits and family tax credits.
In this article, the 786 Loans team will look at what doorstep loans are, what you can expect from one, and alternative finance options open to you if you receive benefits.
What is a door to door loan?
A door to door loans is also known as doorstep or home credit loans. An agent from the lender brings the money directly to your home when you’ve taken out a loan and they return each week to collect the repayments until the debt is paid back in full.
The idea behind a door to door loans is that the agent is there not only to explain everything you want to know but also to finalise your paperwork face to face. While this system can seem convenient, doorstep loans have gained something of a bad reputation in the lending world as they often come with very high-interest rates, pressure sales tactics, and the process often also seems rather informal when it comes to checking for affordability.
How much can you borrow with a door to door loan?
Doorstep loans are taken out usually only for very small sums of money – between £50 up to £1,000. At least one major door to door lender also offers loans of up to £2,000 for returning customers.
With short loan terms, loan agents will typically come to collect repayments each week or fortnight from your home.
Can someone on benefits take out a door to door loan?
While virtually anyone can take out a doorstep loan, even people receiving benefits, they are predominantly used by those in low-income households, according to Citizens Advice (CAB).
The CAB’s research also shows that those who take out the door to door loans were more likely to live in insecure situations or experience personal vulnerability than the majority of the adult population.
The CAB’s research suggests this customer profile is the result of deliberate targeting of vulnerable borrowers and those on benefits; resulting in many being forced to repay their loan out of the benefits they receive for everyday essentials.
Does a company need a licence to offer door to door loans?
All creditors in the UK – including doorstep lenders – are legally required to be authorised and regulated by the Financial Conduct Authority (FCA).
By law, doorstep loan agents can’t come to your home to offer a loan unless you have requested for them to do so in writing. If someone should call at your door to discuss lending you money, you should always ask to see proof that they are authorised by the FCA. If they can’t provide evidence, you should end the conversation and report them immediately.
How much do door-to-door loans cost?
Doorstep loans are an expensive method of borrowing with some lenders charging interest rates upwards of 1,500% APR.
According to the Citizen’s Advice report on door to door loans, this is how much leading door to door lender, Provident, charges its customers…
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On top of these interest fees, many borrowers are also made to pay additional charges and late fees too; often bringing the total cost to over double their initial loan.
How many people use a door to door loans?
Doorstep lending is the largest high-cost credit loan market in Britain however it has begun to decline in recent years.
While there is no definitive data on the number of people taking outdoor to door loans, Citizens Advice have estimated the market has over 1.3 million customers right now in the UK.
Is it true that some agents pressure people into taking more door to door loans out?
As previously mentioned, legitimate doorstep lenders are only allowed to visit your home once you have enquired about a loan online or over the phone.
However, the CAB’s research shows that more than one in every ten door to door loans were initiated by an unsolicited visit from a lending agent rather than an application. This practice is against the law and often results in people taking out credit they neither wanted or needed.
Another major issue with doorstep loans is that many agents attempt to pressure their existing customers into taking out repeat loans.
Rather than offering payment plans to those struggling to repay their doorstep loan, they instead pressure them to take out a new loan to finance their existing debt; doubling the amount of interest they pay.
This highly irresponsible practice also means many get trapped in a cycle of debt through repeat borrowing – giving the doorstep lenders a steady stream of income.
Do door to door loan companies check to see that borrowers can afford to repay their loans?
During their research, Citizens Advice found a great deal of evidence to suggest many borrowers were only accepted for doorstep loans because the lending agents did not perform adequate creditworthiness checks.
Creditworthiness is measured using both your credit history and your ability to repay the loan. It was found that many irreputable door to door lenders that choose to forgo the usual affordability checks legally required by loan providers.
These checks ensure you can comfortably afford your loan repayments along with your usual living expenses and other debts without causing financial hardship. By not doing this, many doorstep lenders put not only themselves (where the risk is balanced by extortionately high-interest rates) but their customers at great risk of falling into a spiral of debt.
What happens if you fall behind on payments on a door to door loans?
Debt collection by doorstep lenders is often an intimidating process. Because agents come to your home directly and many of them earn a commission based on the repayments they collect, many have been found to demonstrate extremely poor practice.
Doorstep borrowers have reported lending agents threatening to tell their neighbours and families of their debt, harassing them for repayment in public locations, and even demanding payment from their friends and family members.
These aggressive collection practices contravene the FCA’s lending rules and it has even led many borrowers choosing to miss payments on their rent and other debts in order to prioritise their doorstep loan repayments.
Many clients told Citizens Advice that they had fallen behind on council tax payments and energy bills to meet repayments. This would not have happened if an affordability check had been carried out. One in ten door to door borrowers indicated they were also unable to afford food for fear of missing their repayment deadlines.
Payday loans and short-term loans for people on benefits
Doorstep loans aren’t your only option when you receive benefits. If your car breaks down unexpectedly or a pipe bursts in your home, you can still find a reputable short-term lender willing to help you out.
How do you find the right one for you? Each short-term lender has their own borrower profile that sets out who they are happy to lend to. While your options may be more limited if you are on benefits, different lenders will look at different things when assessing your application so it is still possible to find a suitable loan provider.
Certain lenders may also be willing to work with people whose income is 100% derived from benefits, however, you will still need to pass affordability and credit history checks.
These official short-term loan companies will also be fully regulated by the FCA meaning a 0.8% cap on interest each day, no more than £15 in default fees over the course of your loan, and a total cost cap of 100% of the amount you originally borrowed.
Find an alternative to door to door loans with 786 Loans
If you receive benefits and need money in an emergency you can compare personal loans with 786 Loans.
We’re not lenders – we’re loan brokers. That means we are here to help you find the best-priced loan from our panel of the top lenders in the UK.
Simply fill in your details on our online form, including the income and benefits you’re in receipt of, how much you would like to borrow, and how long you’re looking to borrow for. Our super-fast computer system then gets to work matching your application up with the lenders most likely to lend to you so you can choose the cheapest short-term or payday loan for you. It’s all done in seconds.
To apply for a loan with 786 Loans, please click here.