Hidden features of doorstep loans that you must know
In the UK, more than 1.5 million people use doorstep loans, also known as home credit loans, which are high-cost credit, according to The Guardian. Doorstep loans have come a long way, but they gained popularity a couple of years ago, paying the way for loan sharks pretending to be legit doorstep lending companies to call you at home and extortionate money by imposing a very high interest rate.
Home collection loans are expensive, not that lenders do intend to make outrageously high profits out of your financial troubles. Their interest rates are high because of additional fees added onto the cost of the loan due to providing doorstep services.
Since these loans are aimed at bad credit borrowers, interest rates will be higher as you will be perceived with a high default risk. Many people are under the impression that home collection loans are mainly available for the unemployed who do not have a functional bank account, but that is not true at all.
Almost all lending companies offer doorstep service to all types of people regardless of their credit score. Still, since these loans are sought-after only by jobless people, they are advertised as doorstep loans 4 unemployed.
What are the hidden features of doorstep loans?
Some of the features of home credit loans are similar to other small emergency loans like payday loans, but lenders might not let you know other elements that could influence your decision to take out these loans:
- Doorstep loans are subject to hidden fees
What you read on the website revealing features of doorstep loans is not always authentic. When it comes to disclosing interest rates for any loan, no financial institutions, including banks, can reveal accurate information. It cannot be possible for a lender to let you know the exact interest rates they will charge as it depends on multiple factors such as your credit history, income sources, repaying capacity, etc.
The interest rates you see on their websites do not include origination fees and monthly fees. It means they only let you know the estimated interest rates, not the APR they charge when you apply for a loan. APRs are always higher than interest rates as they involve fees.
Doorstep loans could be even more expensive than other small loans as doorstep service charges are added to the APR. In reality, borrowers end up paying back more than twice what they borrowed. The APR of doorstep loans could be 1500%, and unfortunately, some lenders have been caught charging even more than that.
- Doorstep loans involve a hard credit check
Many borrowers think that doorstep loans are very convenient to apply for. You just have to fill in the details to provide your personal and financial information, and the next moment, you see a representative of your lender showing up on your doorstep.
This is a big myth. Doorstep lending is convenient, but an ethical or legitimate lender will not loan you unless they thoroughly check your repaying capacity. Going through your income documents is vital, but checking your credit score is also essential.
This will help your doorstep lender know about your past payment behaviour. Despite a good income source, you might be reckless in handling payments. A detailed check cannot be done unless they run a hard credit check. Some home credit lenders advertise their loans with a soft credit check facility.
Soft inquiries cannot let them know about your payment history, and as a result, they will perceive you as a high-default borrower and will charge very high interest rates. Though hard search footprints will pull your credit points, you are likelier to get money at a lower interest rate than lenders with soft inquiries.
A doorstep lender’s representative will call you after assessing your application, including your credit history. If you prove to be a deserving borrower by meeting their eligibility criteria, they will leave your money on your doorstep.
- Doorstep is a service, so high-income borrowers and working people are also eligible
Doorstep loans are particularly sought-after by people who are on low wages or who are unemployed or retired, but these loans are the same as any other small loans. The only difference is that you will get money on your doorstep.
Responsible lenders do not discriminate against their potential borrowers on the basis of their locations. If you need money, you can apply for doorstep loans. You will get money on your doorstep even if you are a full-time employee or earning high wages.
What is the best alternative to doorstep loans?
Doorstep loans could be expensive because of doorstep services added to the debt. Some lenders may let you repay the debt in fixed instalments, but it means ending up paying even higher fees. So, if you want to avoid paying high interest and fees on these debts, you should consider a bad credit loan.
These loans are way cheaper than doorstep loans. A responsible lender will peruse your credit file and income documents to ensure that you do not fall into debt. Bad credit loans come with a more considerable borrowing sum than home collection loans. For instance, a £2,000 loan for bad credit is not available when you consider a doorstep service.
The bottom line
Doorstep loans are, in particular, in demand among people who need money for small emergencies. But there are certain features that you might not be aware of.
First off, doorstep loans do not advertise true interest rates on the landing pages or websites of lenders, meaning an expensive loan offer can trap you despite comparing rates.
Doorstep loans involve a hard credit check, and if any lender lends you money due to soft inquiries, you will be charged a higher interest rate. Not to mention, home credit loans are quite expensive. You should try to consider a bad credit loan to save money on interest. These loans can let you even borrow a larger sum.
Ailsa Adam is the Editor-in-Chief and former content head at Hugeloanlender. She has been a valuable member of the content strategy team since 2017 due to her abundant experience in the finance sector. Passionate about helping individuals navigate the world of loans and personal finance, she has dedicated herself to acquiring extensive knowledge on various financial products. Before her role at Hugeloanlender,
Ailsa worked as a seasoned journalist and writer, specialising in creating informative blogs and articles on diverse loan types. She is known for her meticulous research and commitment to delivering accurate and engaging content. She holds a degree in MBA Finance and has a keen interest in creative writing and art.