Are doorstep loans affordable?

Are doorstep loans affordable?

Although doorstep loans can be expensive compared to some other types of credit, they can be affordable if you can comfortably make the loan repayments which include interest every week.

Just like any other type of loan or credit, you should only consider a doorstep loan if you can afford to make the repayments comfortably and can pay back the loan with added interest within the agreed term. Most lenders will carry out an affordability assessment to ensure the loan is manageable and sustainable for you.

How affordable the repayments are on a doorstep loan will largely depend upon the amount you take out, as well as the term you decide upon.

To help you find out if a doorstep loan is going to be an affordable option for you, we’ve laid out some key facts about them, alongside some other common short-term loan types to give you something to compare it to.

Doorstep loans

  • Usually available for amounts between £100 - £1,000 and to be paid back over several weeks.
  • Doorstep loans may need to be paid in person on a weekly basis at an agreed date and time, so you may need to budget carefully, especially if you are paid monthly.
  • Paying the loan back over a shorter term can mean you end up paying less.
  • Some doorstep loan companies do not impose late payment fees, which means the total amount you agree to pay back at the initial application stage will not change.
  • As the loan is short-term, the APR can be high. You’ll need to work out if you can afford to pay back the loan in full with added interest.

Payday loans

  • Payday loans are typically paid in full on the borrower’s first payday after the loan is taken.
  • Like doorstep loans, payday loans tend to be for amounts between £100 - £1,000.
  • As the loan is short-term, the APR can be high. You’ll need to work out if you can afford to pay back the loan in full with added interest on your next payday.
  • Some payday loan companies may allow you to spread the payments over two or three months, just remember that this can mean paying more interest / charges.
  • Lenders could impose late payment fees.
  • Some payday lenders offer a 24-hour service, 365 days a year. Meaning you can apply for funds on weekends and bank holidays.

Instalment or online loans

  • Borrowing tends to be for amounts between £100 - £1,000 that can be paid back over several months, with payments coming out of your bank account automatically.
  • Interest rates can be high, which can make repayments larger. You would need to be sure they’re affordable for the full length of the loan.
  • There can be fees or charges involved, for things like early or late repayments, which can make the loan less affordable.
  • Some online loan lenders off a personal online account for customers to view 24 hours a day. This means you can manage your online loan whenever you need.

Credit union loans

  • Credit union loans differ from region to region, so charges and terms can vary, but they could potentially offer both smaller and larger amounts.
  • Depending on the credit union, loans can be short-term or long term.
  • Interest rates can be lower than other specialist lenders, making them an attractive option.

 Whichever type of short-term loan you consider, spending time to work out the affordability is key in ensuring that you don’t end up in a continuous cycle of debt. By understanding how affordable each type of loan can be, you can make an informed decision and pick a solution that’s best for you if you determine that you have a borrowing need.

If you're struggling with finances, you can get free and neutral advice from StepChangeNational Debt Line and the Money Advice Service.

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