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Doorstep Lenders

A provisional report released by the Competition Commission in April of 2006 has highlighted the pitfalls of doorstep lenders. These companies offer small loans to individuals who would not necessarily qualify for a bank loan such as single mothers, those on welfare benefits, retired people and those with a poor credit history.

While this is a plus point for doorstep lenders, the fact that their interest charges on a small loan are up to double what they would be if the loan were taken out with one of the big banks means that collectively the people who take out this type of loan could have paid around £100million to much over the last five years!

Why, you may ask, are the interest charges for loans supplied by doorstep lenders so high?

The simple answer is: because they can be!

There are relatively few registered doorstep lenders and so there is very little competition in the field. The genre of people who take out doorstep loans are those who unfortunately for one reason or another cannot walk into a bank or building society and take out a loan there. Banks, as we know, generally require you to be employed and have a bank account before they will consider you for a loan however doorstep lenders can lend small amounts to anyone, regardless of their circumstances.

This is a godsend for individuals such as single mothers who may need a small injection of cash to pay for school uniforms or school trips. The convenience of having a loan from a doorstep lender outweighs the fact that they are paying over the odds. Payments are usually collected on a weekly or fortnightly basis from the home and so customers may not even notice how much extra they are paying for the service.

If there was a bigger choice of lenders in the market the interest rates charged would obviously fall but as things stand the companies that do offer this valuable and essential home service know that the competition is weak and that they can afford to have high interest rates but not lose customers. If there were more companies that offered doorstep loans the interest charges could fall by as much as 9%.