Home credit

Home credit is another term for doorstep lending. It involves someone coming to your door and offering you a loan or credit. It’s best avoided if you have other options as it’s often very expensive.

The high cost of borrowing on your doorstep

Home credit (or doorstep lending) involves loans of typically up to £1,000 in cash. Most are repaid in under a year by weekly instalments, which the firm or their agents collect from your home.

They have a much higher interest rate than a bank loan or a credit card.

For example, if you borrowed £200 for a year from a doorstep lender, you’d have to pay much more than if you borrowed on a credit card charging a higher-than-average rate of 38%.

Borrowing method
Amount borrowed
Monthly payment
Interest charged
Total amount repaid

Home credit charging 299% APR

   £200

     £53.54

   £442.48

   £642.48

Credit card charging 38% APR

   £200

     £20.29

    £43.48

   £243.48

On top of this, you might also have to pay admin (or 'arrangement') fees.

Why home credit can cause problems

It might be tempting to turn to a doorstep lender if you have bills you can’t pay, but borrowing at such a high interest rate could add to your problems.

Also, not all lenders are authorised. If they’re not, this means you might not be treated properly and you won’t be protected if something goes wrong.

 

Making sure the lender is authorised

All home credit lenders must be authorised by the Financial Conduct Authority (FCA). If not, they're acting illegally. Many are also members of the Consumer Credit Association.

If someone calls at your door and offers to lend you money, make sure you ask to see proof that they're authorised by the FCA.

If they can’t provide this, it’s likely that they're a loan shark and you should end the conversation.

Rules for home credit lenders

Home credit lenders can't legally contact you or cold call you to offer a loan. If you want to take one out, you must write to the lender first – setting out your request before they can visit you to discuss the details.

The same applies if you already have a loan with the home credit lender and you’re thinking about getting another one from them (this is called refinancing).

The agent must arrange a separate visit and get a written request from you outlining the details of what you’re looking for. You then have time to change your mind about the visit, without feeling under pressure.

Also, if they do arrange a separate visit to discuss another loan, they must explain to you – in a way that you can easily understand – what the costs are of refinancing any existing loan versus taking out a new loan.

This is so that you can consider the costs of what you’re being offered and shop around to compare them with other types of borrowing.

During the visit, you can change your mind at any time and ask them to leave – it’s your decision.

Alternatives to home credit

If you really need some money now and can afford to pay it back, there might be cheaper alternatives.

You can also compare the costs of these types of borrowing compared with what you might be offered with a home credit loan.

Borrowing from a credit union

It's worth considering using a credit union.

There’s a cap on the amount of interest that credit unions can charge on their loans of 3% a month (1% in Northern Ireland) or 42.6% a year APR (APR 12.68% in Northern Ireland). Many, however, will charge less than this cap. You might need to save with some credit unions for a while before they let you borrow.

Community Development Finance Institutions (CDFIs)

Community Development Finance Institutions (CDFIs), who also call themselves responsible lenders, are small independent organisations that offer loans to people who struggle to access credit from high-street providers.

They tend to offer a personalised service and reinvest any profits they make back into the community. However, CDFIs typically charge higher interest rates than credit unions.

CDFIs, credit unions and all other organisations offering personal loans have to be regulated by the Financial Conduct Authority (FCA) – and comply with the FCA’s rules and standards.

You can find details of CDFIs on the Finding Finance website, run by Responsible Finance, the membership body for CDFIs.

Overdrafts

You might be able to get an arranged overdraft from your bank.

If you keep within the limit and don’t get default charges this will be cheaper than home credit. However, it's still around 40% APR – so it's important to try to repay this as soon as you can.

Credit cards

A credit card will also be cheaper than a doorstep loan, provided you make the minimum monthly payments and don’t get late payment charges or go over your  credit  limit.

Try to pay off as much as you can each month, to keep your borrowing under control.

Make sure you’re getting the right entitlements

If you’re short of money, make sure you’re getting all the benefits you’re entitled to.

If you’re already claiming some benefits, such as Universal Credit, you might be entitled to a Budgeting Advance or Budgeting Loan.

Take another look at your budget

It might be helpful to use our Budget Planner below to see whether you can cut back on your spending to avoid taking out an expensive loan.

Paying back your loan

The money you borrow under a home credit loan is usually repaid on a weekly (or fortnightly) basis to an agent who calls at your home.

If you prefer, you might be able to arrange to make a payment from your bank account instead.

As with any other type of borrowing, it’s important to:

  • always take the time to read and understand the contract - don’t be afraid to ask questions or get a second opinion
  • be clear about the amount you're borrowing,  for how long, and how much you'll have to repay both each week (or other period) and in total
  • make sure you understand what could happen if you can’t keep up the repayments.

As with personal loans, the amount you have to pay in interest is included in your repayments, so you repay a fixed amount each week.

There aren't usually penalties for missing a repayment. But if you’re having problems, make sure you tell your lender as soon as possible as they might be able to come up with a more affordable repayment plan.

They might offer you a top-up loan or to extend the length of the loan. If they do, it's important to think carefully and ask how much extra this will cost you. Can you afford it?

If you want to pay your loan back early

You can repay your loan early at any time, in full or part, and you’ll be entitled to a rebate of future interest charges. But this might not be a full rebate.

Your lender might still charge you interest for a certain period of time, depending on how long is left on your credit agreement. The amount you can be charged is capped by law.

Details of your right to repay early, or to withdraw from the loan (within 14 days), should be in your credit agreement. It's important to read this carefully before you sign up.

If you decide to take out home credit

It’s a good idea to shop around before you sign up to an agreement.

LendersCompared is an independent price comparison website that helps you compare the costs of home credit loans. And remember to compare these costs with the alternatives we’ve listed.

If you’re struggling with debt or everyday bills

You can get free, confidential advice which will help you get your finances back on track and is usually a better alternative to borrowing more money.

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MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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