Doorstep loans are called home credit loans, as money is handed to you on your doorstep. These small loans are aimed at meeting small emergency expenses. The maximum amount of money cannot be more than £1,000. However, a lender will peruse your income sources in order to determine your affordability. The representative of a lender will visit your home to deliver money. The money is paid back through bank transfer, but you can choose doorstep collection.
Doorstep loans are not a type of loan; they are rather payday loans or small emergency loans provided on your doorstep. Doorstep is a service that you can choose if you want. It is worth bearing in mind that these loans are paid off in one fell swoop. It means you will have to discharge your obligation in one go on the due date.
Now the question is whether doorstep loans are legitimate in the UK. This has become a relevant question after the most famous lending company, The Provident, had to cease its operations as its integrity was questioned by thousands of borrowers, which led to the FCA investigation that found the Provident Company’s interest rates exorbitant, plunging borrowers into an abyss of debt. The company would charge APR as high as 1500%, which was beyond affordability.
Although the Provident Company no longer exist, doorstep loans are still circulating in the market. A few lenders are out there who still provide doorstep service. These loans are legal in the UK, provided lenders act within the FCA guidelines.
FCA guidelines about doorstep loans
The FCA recognises the fact that doorstep loans are quite expensive loans. High-cost short-term loans can be provided by lenders, but the FCA has issued some guidelines in order to protect the interests of users. Most people end up with exorbitant deals and fall into an abyss of debt.
The FCA has clearly established guidelines for lenders that on no account could they lend money to borrowers beyond their affordability. It is a must to evaluate how much income they have and how much they would be able to pay off. Some lenders make the lending decision based on income details that borrowers provide, especially when the borrowing amount is not more than £500, without asking for a bank statement in order to check their expenses to know whether they have wiggle room in their budget to discharge their debt after meeting all their essential expenses.
The FCA has recommended that all lenders carefully go through borrowers’ income sources to ensure that they can pay back the money they are borrowing. In addition, it is crucial for lenders to check borrowers’ credit scores.
A credit score perusal is a must because it reveals whether a borrower would be able to repay your debt. It is not mandatory that lenders run a hard check, but a soft check is compulsory. There are some lenders who provide doorstep loans without a credit check in the UK. You should never pay heed to such loan deals because no authorised lender would ever lend you money without credit checks.
Lenders providing these loans could be loan sharks. They charge extremely high interest rates. As a result, borrowers fall into an abyss of debt. It is highly recommended that borrowers not borrow money from unregistered lenders. It is their personal obligation to research the authenticity of a lender. Borrowing money from loan sharks itself is enough reason to preclude you from filing an affordability complaint because it was your choice to borrow from an unregistered direct lender in the first place.
Price cap
The FCA has put a cap on interest rates. No lender is authorised to charge more than 0.8% interest per day. Bear in mind that interest rates and APRs are not the same. The latter includes interest rates and fees. 0.8% interest per day includes interest and fees, and related charges. It means the annual percentage rate cannot be more than 292%.
Default fee cap
In addition, default fees are capped at £15. Default fees are charged when a borrower misses a payment. Lending companies are authorised to charge interest penalties after default, but they should not exceed the aforementioned rate.
Total cost cap
The FCA has capped the total cost up to 100% of the borrowed amount, including interest rates, fees, and associated charges. Borrowers never have to pay more than double the amount they borrow.
The FCA, after the implementation of the cap rules, found that this helped borrowers save millions of pounds. These policies made the availability of affordable loans possible.
Ways to check whether your lender is authorised
It is your responsibility to check whether your lender is authorised. A golden rule of thumb says that you should check these details on a lender’s website from whom you are looking to borrow money. A registered lender will disclose its registration number on their website.
It is likely that the details given on the website are not accurate. Therefore, it is vital that you check whether the lender is registered or not on the FCA Register. You just have to type the name of the lender, and then it will disclose all registration details. If the lender is not registered with the FCA, it will clearly inform that the lender is not registered.
You should never borrow money from any unauthorised lender because there is a high chance that you will fall into an abyss of debt.
The final word
Doorstep loans are legal in the UK; however, it is a must to ensure that you are borrowing money from a registered lender. There are some loan sharks providing these loans, too. You should always ensure that you borrow money from a registered lender, which you can come to know by checking registration details on their websites and the FCA Register.
You should always try to borrow money from a registered lender because you will likely get affordable interest rates. You can file an affordability complaint against them in case you suspect that they lent you more money than you can afford.