Home credit or doorstep lending

Money Advice Service

Home credit is a type of doorstep lending. It can be expensive compared to other types of borrowing, so is best avoided if you have access to other forms of credit. Find out why and what the alternatives are.

The high cost of borrowing on your doorstep

Doorstep loans are often for small sums – between £50 and £500 – over short periods, with repayments collected weekly or fortnightly at your home.

They have a much higher interest rate than a bank loan or a credit card.

If you borrowed £200 for a year from a doorstep lender, you’d pay much more than if you borrowed on a credit card charging a higher than average rate of 38%.

Borrowing method Amount borrowed Monthly payment Interest charged Total amount repaid
Home credit charging 272% APR £200 £30.30 (or £7 a week) £164 £364
Credit card charging 38% APR £200 £20 £37 £237

Make sure the lender is authorised

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All home credit lenders have to be authorised by the Financial Conduct Authority (FCA); if not, they are acting illegally.

If someone calls at your door and offers to lend you money, you should ask to see proof that they are authorised by the FCA.

If they can’t provide this, it’s likely that they are a loan shark and you should end the conversation and report them.

Rules for home credit lenders

By law, home credit lenders shouldn’t call on you uninvited, to offer loans.

They need written permission to visit. The same applies if you already have a loan, and the agent offers a further loan whilst visiting to collect repayments.

They need to arrange a separate visit to discuss the details and sign you up – so you’ve got time to change your mind about the visit, without feelings under pressure.

Also, if they do visit on a separate occasion, to offer a loan, you can change your mind at any time and ask them to leave, it’s your decision.

Why home credit can cause problems

It might be tempting to turn to a doorstep lender if you have bills you can’t pay, but borrowing at such a high interest rate could add to your problems.

If you are struggling to pay day-to-day bills, you should get help from a free debt advice charity.

Alternatives to home credit

If you really need some money now and can afford to pay it back there might be cheaper alternatives.

Consider using a credit union. They act in the interests of their members.

There’s also a cap on the amount of interest they can charge by law on their loans of 3% a month or 42.6% a year APR, but you might need to save for a period before you can borrow.

Borrowing from a credit union

You might be able to get an authorised overdraft from your bank.

If you keep within the limit and don’t incur default charges this will be cheaper than a home credit loan.

You should only borrow as much as you need to, and repay it back as soon as you can. Be careful not to go into unauthorised overdraft as this can be very expensive.

Overdrafts explained

A credit card will also be cheaper than a doorstep loan, provided you make the minimum payment and don’t incur late payment charges or go over your credit limit.

Try to pay off as much as you can each month, to keep the debt under control.

Ways to increase your credit limit

Check you’re getting all the benefits you’re entitled to.

Make sure you’re getting the right entitlements

If you desperately need to borrow money, you might be able to apply for an interest-free Budgeting Loan from the Social Fund.

Alternatively, other help might be available from your local authority in England, or the Scottish and Welsh governments.

In the future

See if you can cut back on your spending to improve your finances.

Paying back your loan

The money you borrow under a home credit loan is usually repaid on a weekly (or fortnightly) basis to an agent who calls at your home.

If you prefer, you might be able to arrange to make a payment from your bank account instead.

As with any other type of borrowing, you should:

  • Always take time to read and understand the contract – don’t be afraid to ask questions or get a second opinion.
  • Be clear about the amount you are borrowing, and for how long, and how much you will have to repay each week (or other period) and in total.
  • Make sure you understand what could happen if you can’t keep up the repayments.

As with personal loans, the interest charges are included in your repayments so you repay a fixed amount each week.

There are usually no penalties for missing a repayment, but make sure you mention you’re having problems as soon as possible as the lender might be able to agree a new repayment schedule.

If they offer you a top-up loan or to extend the length of the loan, think very carefully and ask how much extra this will cost you. Can you afford it?

If you want to pay your loan back early

You can repay your loan early at any time, in full or part, and you’ll be entitled to a rebate of future interest charges. The amount you can be charged is capped by law.

Details of your right to repay early, or to withdraw from the loan (within 14 days), should be in your credit agreement. Read this carefully before you sign up.

If you do decide to take out home credit

Make sure you shop around before you sign up to an agreement.

You can do so by using the Lenders Compared website – an independent price comparison website set up by regulation to help you compare the costs of home credit loans.

If you’re struggling with debt or everyday bills

You can get free, confidential advice which will help you get your finances back on track and is usually a better alternative to borrowing more money.

This article is provided by the Money Advice Service.

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