- March 11, 2020
- Mark Elwes
Doorstep Loans: Traditional Lending VS Contemporary Lending
Table of Contents
Lending has drastically evolved. There were times when you would go to a financial institution in-person to complete all formalities to borrow money. Massive paperwork – from filling out an application form requiring your personal and financial details to documentation for verification of your financial wellbeing – and waiting for a couple of days to get money in your account were predominant features of traditional lending.
One of the drawbacks of traditional approach was that many people had no permission to borrow money in case of questionable creditworthiness. Secondly, the slow process showed harmful effects on people in need of cash for emergency reasons.
Bearing these factors in mind, financial institutions made the lending process simpler and more flexible and then the concept of contemporary lending was introduced. It is nothing but online lending. As the name suggests, you do not need to go in-person to a financial institution to apply for a loan. You do not need to fill out horrifying and lengthy application forms, nor do you have to get into the hassle of documentation.
Lending firms aim at providing you with quick access to funds and hence they have removed unnecessary hassle. The priority is to evaluate your creditworthiness so that you do not borrow more than your affordability, which they can determine by getting your credit report from any of these three credit reference agencies – Experian, Equifax and TransUnion.
Online lending emerged as a boom to borrowers with bad credit. While traditional lending would keep such borrowers from taking out a loan, online lending has made it possible. This blog shows the detailed comparison between conventional and modern lending of doorstep loans with its pros and cons.
Doorstep Loans – The Old-Fashioned Way
A doorstep loan is a small personal loan that allows you to get money at your doorstep. You will fill in the application form, and the agent of a lender will schedule a meeting at your home to evaluate your creditworthiness. You will have to tell the agent how much money you want to borrow, and the agent will look over your income statement to check your affordability.
Once the agent is sure about your repaying capacity, you will get money on the spot. Doorstep loans introduced to help people tide over who do not have a functional bank account and are senior citizens, unemployed or disabled. You will get money in your hand after signing the agreement revealing other conditions associated with the loan.
- The length of such loans is not more than a month, and the size of the loan varies between £1,000 and £2,500.
- The agent will visit you to collect funds on the due date. Most of the time, such loans require you to pay in a lump sum.
- However, some direct lenders try to be a bit flexible and therefore divide it into weekly or bi-weekly instalments.
Doorstep Loans – The Modern Way
So far, it seemed like doorstep loans are affordable as you do not have to make larger payments and you can pay the whole of the money at once, but all direct lenders were way off beam. Over time, there had been an increasing number of cases of defaulters. More than 75% of people found it difficult to pay back the money. They continued to end up rolling over a loan and eventually fell in a debt trap.
Considering the struggle faced by borrowers, some new steps were introduced to the lending criteria. It encouraged direct lenders to extend the repayment period of doorstep loans to 12 months. The other name of these loans is 12 month loans for unemployed.
12-month doorstep loans are those that require you to pay the amount over a period of 12 months.
One of the most significant benefits of these loans is you can borrow a large amount. Since you will pay down the loan in fixed monthly instalments, you will not likely fall behind repayments.
- The agent will allow you to borrow money up to £5,000 depending on your affordability and credit needs.
- Such loans will help you build your credit rating because each payment will be reported to credit reference agencies.
Both types of doorstep loans are available on the market. Which kind of loan will suit your budget depends on your financial circumstances.
If you want to take out a loan to build your credit rating, you should take out 12-month doorstep loans. A credit score goes up if you dedicatedly make all repayments.
Small doorstep loans do not contribute to credit score building because the repayment term is not long enough to have an idea of your financial behaviour in case your financial circumstances change.
Whether you take out regular doorstep loans or 12-month doorstep loans, make sure that you do not commit a default. Otherwise, you will end up paying late payment fees and interest penalties. In case you feel that you cannot pay your instalment, you should immediately inform your lender. They may help you by changing your repayment plan. Prior intimation can help you avoid late payment fees.
The lending industry is continually evolving to enhance the borrowing experience, and doorstep loans have proved it.
Mark Elwes is the Editor-in-Chief at Extramilefinance. He is a notable member of the content strategy team since his joining in 2017. Driven by his fondness for the finance industry, he has spent years gathering as much knowledge as possible about various financial products that include loans also. Previously, Mark worked as a senior journalist writer with experience in writing blogs and articles.
