Table of contents
- What is a Home Credit Loan?
- Do you need Home Credit?
- I've decided you want to borrow money – What next?
- Rules for lenders
- Comparing loans
- Problems caused by loans that come to your door
- Where to find free debt advice:
- You are not eligible for a Budgeting Loan if:
- Paying back your loan
- What happens if I pay back my loan early?
What is a Home Credit Loan?
Home credit loans are a form of doorstep loans, where you borrow money and the lender makes visits to your home to collect the repayments. Many people on modest incomes choose these loans because it provides access to small, affordable amounts of cash credit with a repayment plan that is transparent, flexible and low risk.
Home credit is easily accessible through agents who live and work in your community, and it is not uncommon for them to have used home credit themselves before becoming an agent. This gives them a personal understanding your needs and circumstances, something that would not be possible when dealing with a website or a faceless call centre operator.
Although less complicated, these loans can be expensive when compared to other types of borrowing. We recommend you avoid them if you have access to alternative forms of credit.
Do you need Home Credit?
Should you get Home Credit Loans? Before applying, it is advisable to think about whether you really need to lend money. Nowadays, more people are wisely choosing to pay back borrowed money rather than borrow more.
However, if you are facing a small financial crisis or need money urgently to quell an emergency, you may want to consider using this tyoe of loan to obtain extra cash to see you through until your next pay day.
Before you borrow money, you should always ask yourself these three questions:
- Do you really need the money?
- Do you have no other ways you can get the money?
- Can you afford to pay back the money you're planning to borrow?
If you answer yes to all three questions, then it is likely a good option for you.
I've decided you want to borrow – What next?
If you definitely want to borrow some money and you are sure you can repay it, there are a number of important factors to consider.
How much can you afford to repay? - It's very important to work out how much you can afford to repay each month, as this will determine whether Home Credit is a viable option for you. Make sure you are realistic about how much you could afford pay if your expenses went up.
Choose the right doorstep loan company - If you have a poor credit rating then you might have no choice but to use a doorstep lending company. Be careful with your choice otherwise you could find yourself paying more than you need to.
Home credit is highly flexible. Typically, no security or guarantee is required, and no default charges are imposed on missed or late payments. If you experience financial difficulty, your agent will adjust your repayment plan so that your situation gets better, not worse.
Agents enjoy a privileged position of holding personal relationships and a good understanding of their customers' financial situations. This means you will be dealing with someone who is more likely to understand your circumstances and who will only ever lend you what you can afford to repay.
Many users receive a weekly income, and may find it more convenient to make small weekly payments, rather than larger monthly payments as required by other lenders. THis type of loan ensures that borrowers with these specific needs have easy access to doorstep cash loans.
Your loan agent will let you know upfront exactly how much you can borrow, how much you will repay and how long it will take.
The high cost of Home Credit
These loans have significantly higher interest rates than bank or credit card loans.
They are often for small amounts – usually below £500 – over a short period, with payments collected weekly in arranged visits at the customer's home.
Getting a loan
Loan agreements will usually take place in the convenience of your own home. As with any other type of loan, you will need to show that you can afford the payments. A face-to-face discussion enables your local agent to build up an understanding of your income and expenses, and come up with a payment plan that will not put you under any undue financial stress.
When taking out a doorstep cash loan, you should always make sure to:
- Carefully read and understand the entire contract. Ask questions or seek a second opinion where you are not sure.
- Be clear about the amount you are borrowing, how long it will take you to repay, how much you will pay on each collection date and how much you will repay in total.
- Make sure you understand what might happen if you fail to keep up the payments.
Remember that to take out a loan in the UK you don't need:
- A bank account
- Perfect credit
- A guarantor
- To own a home
Make sure your lender is authorised
Home Credit lenders are authorised by the Financial Conduct Authority (FCA). Agents do not need their own FCA authorisation but can operate under the authorisation of the lender that they represent.
If an agent calls at your door and offers to lend you money, it's advisable that you ask to see their lender's authorisation. If they don't have one, it's likely that they are a loan shark and you should avoid borrowing from them.
To find out whether a lender is authorised, you can check out the FCA Register.
Rules for lenders
Many doorstep loan companies belong to the Consumer Credit Association and are regulated by the CCA Code of Practice. If you have a problem with a CCA lender, you can file a complaint with the CCA.
By law, it is illegal for doorstep lenders to call on you uninvited offering loans, unless the visit is made in response to a written and signed request. If an agreement was not properly made, the lender may not be able to force you to pay back your doorstep cash loan. This also applies if you have already borrowed a loan, and the agent offers another loan whilst on a visit to collect repayments. Your agent will need to arrange a separate visit to discuss a further loan.
If you would like to confirm that your agreement has been properly made, you can get help from a Citizens Advice Bureau.
If a complaint about a lender cannot be resolved by the CCA, the complaint can be referred to the Financial Ombudsman Service.
No two credit companies are the same. If you interested in a loan and would like to compare deals look at:
- Interest rates and the APR
- How much in total you will repay
- How much you will pay in weekly instalments;
What if you are offered trading cheques or vouchers?
Lending agents sometimes offer trading cheques and vouchers. These are exchanged for goods, usually small furnishings or clothing items in specific shops. Interest rates are high for this type of credit.
Problems caused by loans that come to your door
It is tempting to turn to a doorstep lender especially if you are struggling to make ends meet or are in debt, but taking a loan at such high-interest rates is not beneficial and could further compound your problems.
If you are burdened by financial troubles, it is recommended you get help from a free debt advice charity. There you will find sympathetic debt advisers that will discuss your situation with you in detail, and help you to find practical ways of managing your debt.
Where to find free debt advice:
Debt Advice Foundation - A national debt advice charity offering free, confidential advice to anyone with debt problems.
Step Change Debt Charity- Provides expert financial advice, budget support and solutions to help you deal with debt.
Citizens Advice Web Chat - A chat service that offers free, confidential and impartial debt advice.
PayPlan - An online platform offering free, confidential online chat with debt help experts, a debt help request form, and a wealth of online resources.
National Debtline - Provides free online debt advice.
##Cheaper alternatives in the UK
If you are in need of cash and can afford to pay it back, it might be in your best interests to look for cheaper alternatives.
Borrowing from a credit union - Consider using a credit union. They act in the interests of their members. A cap of 3% is set on the interest they can charge on their loans.
Bank overdraft - You might be qualified to get an authorised overdraft from your bank. An overdraft may be for a fixed amount over a set period, or you may be given a limit on an ongoing basis to use whenever you like. If you keep within the limit and don't incur default charges, this option will be cheaper than a home credit loan.
Credit card loan - A credit card loan will also be cheaper than a home credit loan, provided you make the minimum payment and don't incur late payment fees or go over your credit limit.
Budgeting Loan from the Social Fund - To qualify for an interest-free budgeting loan you must have been getting one of these benefits for the past 6 months:
- Income Support
- Income-based Jobseeker's Allowance
- Income-related Employment and Support Allowance
- Pension Credit
You are not eligible for a Budgeting Loan if:
- You're involved in industrial action (for example, a strike, walkout or lockout)
- You owe more than £1,500 in total for Crisis Loans and Budgeting Loans
If you don't qualify, other help might be available from your local authority.
Paying back your loan
Money borrowed under a doorstep cash loan is usually repaid in weekly or fortnightly instalments to collecting agent who calls at your home on a prearranged schedule. In some cases, it might be possible to make payments from your bank account instead.
Similar to personal loans, the interest charges are included in your weekly payment instalments.
While there are usually no penalties for missing a payment, you should get in touch with your loan agent as soon as you realise you will not be able to make a payment. Your agent can help you work out a new repayment schedule.
If you are offered a top-up loan or an extension on your loan, make sure you are clear on how much extra this will cost you.
What happens if I pay back my loan early?
You are able to fully repay your loan at an earlier date than agreed, you should know that you'll be entitled to a rebate of future interest charges.
Details of your right to repay early, or to withdraw from the loan, should be in your agreement.