Are doorstep loans an expensive deal?

Asking your parents or friends for money may seem self-abasing, so you think of a better alternative – doorstep loans. These are home credit loans. They work as any other small emergency loan, particularly suitable for those who are redundant.

You just need to fill in the application form to provide your financial information.

Not to mention, you can be caught unawares by unforeseen expenses at any moment – after all, emergencies do not give advance notice. Although you know that you should have an emergency cushion to fall back on, more often than not, it fails to bail you out.

If you seem to be able to pay back the debt, they will sign off on it. These loans are applied mostly when you are unemployed, so they are called doorstep loans for benefits.

Interest rates of these loans could be high because a lender has to make a separate arrangement to hand over or collect money. Further, despite proving your affordability, you will be treated as a borrower with high risk.

You will likely fall behind payments if your struggle to land a new job does not come to an end or you come across another expense that eats into your benefits, pushing you to the verge of debt.

Are doorstep loans for benefits affordable?

Compared to other types of loans, doorstep loans could be expensive, but they will be affordable when you make payments smoothly within the stipulated timeframe. A lender runs an affordability check to ensure that you will not struggle to keep up with payments.

You cannot just throw your caution to the wind. You should carefully check whether your budget has wiggle room to pay interest on top of what you are borrowing. Here are some tips to get a home credit loan at the most affordable interest rate:

•          Your credit score should be in a good condition

Before you take the plunge, you should check your credit report. Though a lender finds you in a comfortable situation, you might find it extremely more challenging.

Bear in mind that you are to pay off the whole of the debt in one go. As far as it is about lenders accept payments in weekly instalments, it is still difficult.

If your credit rating is not up to snuff, you had better avoid taking out these loans.

•          The borrowing amount also matters

A lender takes the borrowing amount under advisement to determine the interest rate.  How affordable the doorstep loan is will depend on the amount you borrow.

It will let you avail of lower interest rates.

This can prevent you from paying down interest. Though it seems like going hat in hand to them, it is still way better than taking out a doorstep loan. Despite a good credit score, these loans carry higher interest rates.

If you do not weigh up your repaying capacity, you will be hard put to clear your dues and ultimately fall into debt.

A comparison between doorstep loans and other common short-term loans

Key important features have listed below to help you determine if doorstep loans are actually affordable. In addition, the features of other short-term emergency loans are also mentioned. A detailed comparison will help you make a decision.

Doorstep loans:

• Depending on the loan size, you can borrow between £100 and £1,000 to be repaid in one go or weekly instalments.

• The shorter the repayment period, the better. You will be paying less money in total.

• Some doorstep loan companies do not impose late payment fees. It means if the due date slips through the cracks, the total amount to be paid will be intact.

• The APR is high. If you fall behind in payments, interest will add up quickly.

Payday loans:

•  Payday loans are paid back in full on payday. The repayment period is generally two weeks.

• The minimum borrowing amount is £100, and the maximum is £1,000.

• On top of accrued interest, you will be liable to pay down late payment fees as well.

• If you get these loans from a payday company that extends the repayment period, you will end up paying more money in total.

Instalment loans:

• The borrowing amount will be between £100 and £1,000.

• The repayment period will be between three months and a year, depending on the amount you borrow.

• It helps improve your credit score.

• Monthly payments could be a bit higher because of add-ons like monthly fees.

• As these loans are not subject to collateral, interest rates will be higher if your credit score is poor.

Take message home

Affordability is the key regardless of the loan you take out to fund your unforeseen expenses. Even a loan with the lowest interest rate has the potential to throw you into an endless circle of debt if you fall behind the payments.

You are good to go if you can repay the debt on time. If you cannot decide which loan best suits your needs, you can turn to financial advisors.

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