Alternatives to Doorstep Loans
The First Step Should always be Free Independent Financial Advice
Apr 8, 2009
Doorstep lenders are legally licensed and registered with the Office of Fair Trading (OFT) and concentrate on a sector of the market that traditional mainstream lenders tend to ignore. Their customers may have been refused credit elsewhere, have court judgements against them, have little in the way of assets and may be receiving state benefits.
Traditionally they will provide small cash loans up to £500 with repayments being collected at the borrower’s home.
However those who find it convenient to take advantage of doorstep services will pay a very high price. Two of the UK’s best-known doorstep lenders are charging exceptionally high rates of interest, currently between 189.2% and 254.5%.
- Example loan amount £300
- 57 weekly repayments of £9
- Total amount payable £513
- Typical 189.2% APR
(example courtesy of Provident Personal Credit)
Consider the example above, on the face of it £9.00 is not a large sum of money but in the end it’s all relative when a person is on a low income or on benefit.
Even though interest rates are very high it’s easy to see why this method of lending is on the increase. Amounts borrowed and repayments are generally low although repayments are made over an extended period.
The UK Insolvency Helpline, a leading debt advice agency, has produced some startling information relating to doorstep loans:
- More than 2 million people each year use doorstep loans
- The doorstep industry is worth £100 million a year
- No price comparisons are offered with other lenders
Alternative to Doorstep Loans
Are there alternatives? Well for some there might be, depending on what the money is needed for, A person on benefit for example might be eligible for a Crisis Loan, which is available through their local Job Centre.
Credit Unions
An increasingly popular place for cheap borrowing is the credit union. Credit unions are financial cooperatives run and financed by their members. So anyone wishing to borrow from a credit union must first be regular saver with it, but it can be a very small affordable amount.
Before someone can join a union they must have a ‘common bond’ with other members that may be living or working in the same area or working for the same employer.
Some appropriately licensed credit unions will additionally offer valuable financial advice, which is free and independent.
Independent Financial Advice
However for anyone, with a less than perfect credit score, looking for a loan at the top end of the interest scale it’s worth seeking some free and independent financial advice. The organisations listed below can help.
- Consumer Credit Counselling Service (CCCS)
- Credit Action
- UK Insolvency Helpline
- Citizens Advice Bureau
Sources:
directgov website Dealing with loan sharks
Abigail Townsend, Beholden to the Lender on the Doorstep, Telegraph.co.uk 4 March 2009
Provident Personal Credit website
Shopacheck website
UK Insolvency Helpline, Debt from Doorstep Loans
Association of British Credit Unions Limited website
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