Doorstep Loans Vs Payday Loans. Which are better?
Which are cheaper and which are safer? Find out all about these 2 types of loans with Quick Loans Express and how FCA regulations affect them.
The Doorstep Loans industry and the payday loans industry both operate throughout the UK. They are similar in the way that they both offer their customers the chance to take out a low amount of money for a short period of time at a high rate of interest.
In this article about Doorstep loans vs Payday loans, we shall take a look at:
What payday loan lenders are
What are payday loan lenders?
A payday loan is a short term loan, usually for a small amount of money. Payday loans are designed for you to pay them back when you get your next salary on your payday. The lender funds the quick loan into a bank account and then debits the money at the end of the borrowing time in full, plus interest and fees. Many payday loan lenders now offer loans for longer periods of time, some for up to six months. The repayments are then conveniently broken up into smaller monthly instalments. This is an expensive way of borrowing that made some people who took out payday loans, but could not afford the product, get themselves into debt.
What are doorstep lenders?
Home credit, or doorstep lending as it is better known, is when a company brings the money that has been loaned to a person’s home and collects the repayments from the doorstep in weekly or fortnightly instalments, depending on the arrangement of the loan. These loans are typically from £50 to £500 and have high rates of interest. These loans can be for various lengths of time, depending on the customer’s wishes. There are other kinds of doorstep lending companies who offer products such as ‘rent to own’ appliances and log-book loans.
What rules do payday loan companies follow
Like all financial institutions in the UK, the Financial Conduct Authority regulates the payday loan industry. In recent years, many people had taken payday loans who could not really afford them. Because of the high fees and interest rates that some payday loan companies charged, many people got themselves into serious debt. After public outcry, the industry was strictly regulated in 2015.
The new regulations brought price caps into effect which mean that a borrower can not pay back more than twice the amount originally borrowed. The FCA capped missed payment fees at £15. The terms of the loans were extended and companies were made to clearly display their borrowing terms and links to comparison loan websites. The industry was forced to practice more responsible lending to protect people from themselves. These regulations were a great success with half the amount of payday loan, debt-ridden people contacting the Citizen’s Advice in the first year. The new regulations pushed out small, unscrupulous lenders from the market leaving a much smaller number of companies in business and playing by the rules.
- Firstly, a payday loan is a short term loan for a small amount of money with a high rate of interest
- Secondly, people took them out, but could not afford the product and got into debt
- Thirdly, a doorstep loan is a kind of loan that is brought to and collected from a person’s home
- Next, other kinds of doorstep lending are logbook loans and rent to own products with high-interest rates
- As well, the FCA regulates the industry like most financial institutions in the UK
- Payday loans were price capped and strictly regulated in 2015
- Finally, the FCA regulations mean that fewer irresponsible borrowers can access payday loans
What rules do doorstep lenders follow?
The FCA must regulate all home credit lenders for them to operate. Many who approach customers in their homes are not. By law, doorstep lenders require written permission to visit a customer and are not allowed to call uninvited. The same rules apply if an agent is collecting repayments, they are not allowed to offer loans. If the customer needs another loan, they must make a separate appointment to discuss the borrowing terms to give them time to consider their options. During a further visit, a customer is allowed to ask an agent to leave at any time.
The FCA regulates doorstep loan companies too. Still, when it comes to doorstep Loans vs payday Loans, the recent regulations for payday loan lenders have cleaned up the industry and proved successful. However, they have not been extended to cover other types of high-cost credit, like doorstep loans. These companies operate in the poorest regions of the country. There, most of their users have little or no credit history. Others are unemployed, suffering from family breakups or ill health. The Citizen’s Advice Bureau has asked the FCA to extend the payday loan regulation to similar kinds of high-cost credit. This will mean that people who can no longer get payday loans will be protected from other forms of credit.
How else do these loan companies compare?
Both of these types of loan companies can charge similar rates from 1,000% up to 1,500% APR.
The loans market is very competitive so you can obtain better deals from both kinds of lenders. Payday lenders work within the new regulations and follow voluntary conduct codes in the form of the good practice charter. Most payday lenders do follow these codes of conduct to be competitive. They also perform credit checks on their customers to ensure that their customers can afford the product.
Doorstep lenders do not have to follow any conduct codes and can lend at their own discretion. In a report from the Citizen’s Advice at the beginning of the year to the FCA, they reported cases of intimidating behaviour by collection agents. A third of customers had multiple loans and felt hassled for repayments. This is a big problem with these kind of loan companies who find themselves with employees using intimidating behaviour, to collect repayments that they earn commission on, without their knowledge. Agents become very friendly with their customers and can prey on vulnerable people who already in serious debt by plying them with more debt.
So what can we conclude about Doorstep Loans Vs Payday Loans?
Both kinds of companies offer high-cost credit to people who do not have good credit scores and cannot take other forms of cheaper credit. When it comes to doorstep Loans vs payday Loans, the biggest difference is that the doorstep loan industry is not regulated like the payday loan industry. The FCA is reviewing the regulations that were enforced on the payday loan industry. they want to see if the restrictions on borrowing have pushed vulnerable people into taking on other unregulated means of high credit borrowing.
The Citizens Advice have filed a report on behalf of individuals who have been mistreated by doorstep lenders. They have called for the FCA to impose the same regulations on other forms of high-cost credit, including doorstep loans. There are worries that if the high-cost credit industry had similar regulation imposed, it would collapse. However, payday and same day loan industry has disproved this by continuing to flourish without pushing people into debt. It’s safe to say that when considering doorstep Loans vs payday Loans, you really need to see which suits your needs better. Quick Loans Express offers safe online payday loans with affordable repayment plans.