Doorstep Lending

For some, it’s hard to find credit easy to come by, especially if there is no or a poor credit history or if means are limited because of unemployment. When money is needed it may be difficult to resist an opportunity to borrow even a small sum in the form of a doorstep loan, despite its drawbacks.

These loans, repaid weekly to a collector calling at the home often have big interest rates attached, resulting in what appears at first to be a small amount to be repaid, rapidly mushrooming into an unmanageable debt.

The door step selling market has grown since the last recession in the 90s when, as a result of losing credit worthiness because of mortgage arrears, repossession or other reasons for a county court judgement, many found that this avenue of borrowing money, at high interest rates, was their only option.

As a result of concerns the National Consumer Council launched a complaint against the industry about these activities and doorstep lenders came under investigation by the Office of Fair Trading. The NCC alleged that millions of low-income consumers, often denied credit on the high street, were exploited by home credit providers that charged massive interest rates.

The investigation revealed that consumers were, by and large, happy with home credit, where repayments on loans were collected from the customer's home with often a rapport developing between the collector and the borrower. However the commission noted that there seemed to be a lack of competition in the market, which allowed high interest rates to be charged and there was little to encourage borrowers to clear their debt early.

Consequently rules were introduced to make the doorstep credit business more competitive, to provide better price information and to provide a fair rebate for those who pay off their loans early. The Commission also required lenders to provide details of the independent website lenderscompared.org.uk, so that borrowers can see what different lenders are offering.

In addition to the three big main companies in the ‘home collection’ market there are now hundreds of others providing doorstep credit services. Many of these smaller firms operate under the radar of the doorstep credit rules charging exorbitant interest rates and by its very nature the industry has a bad image in the eyes of some.  It is arguable whether the industry should be banned as this could lead to more clandestine operations and clearly, there are many for whom this sort of borrowing arrangement is their only means of obtaining credit.

It remains to be seen whether the doorstep loan industry will continue to grow, as even now some of the big firms are in trouble and this could add further pressure once the high street lenders make credit more available to those with poor credit histories.

If you find you have a need for this sort of loan, don’t take the first offer that comes along. Visit lenderscompared.org.uk, and shop around for the best deal before you do any more and make sure you know exactly what you will be paying out.

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