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Doorstep loans have become a staple in the financing world. Considering how they offer easier access to small, shot-term loans, many borrowers have referred to these credit instruments especially during those emergency financial needs. However, they are an expensive as lenders are known to charge very high interest rates. If one is not careful, it is easy for debts to get out of hand.
Recently, new regulations have been set when it comes to how doorstep loans are granted and how lenders providing such a product should operate. Read on to find out of your lender of choice is operating within the legal means if you plan on taking out a doorstep loan.
Understanding Doorstep Loans
These short-term loans are designed to help people who are short on cash and need their expenses covered until their payday. In most cases, the funds are sent directly to the borrower’s bank account and should be repaid along with interest by month’s end.
They are known for being high-cost and are only offered for smaller amounts. Most lenders are able to offer borrowing amounts from £100 to £1,000. While it is common to have to pay it off on the next payday, there are lenders that may allow borrowers to pick their own repayment term. When managed right, a doorstep loan can be a great tool for tiding you over until you get access to your regular income. But their expensive rates can often get people into trouble if they’re not too careful.
To ensure that borrowers’ rights are protected when taking advantage of this credit instrument, the Financial Conduct Authority has set regulations to ensure that firms will only lend money to people who can afford to pay it back. Lenders are required to increase awareness among borrowers of the risks and costs involved, as well as offer ways on how they can get assistance in the event of financial difficulties.
Before taking out a doorstep loan, borrowers need to consider how much they need and if this is within the allowed loanable amount by the lender. Since they’re getting paid for everything they are taking out, it is best to stick to numbers that they do truly need. It matters to manage this loan right and to pay it on time due to the high interest rates. Late payments can lead to penalties, bloating the debt even more.
There may come a point where you will need to borrow money. It could be a home renovation project, a medical emergency, a planned holiday, or anything that you cannot just afford by pulling out some funds out of your savings. When such a situation arises, however, the biggest concern would be whether you’d get accepted or not.
There are numerous factors that will likely affect your chances of getting approved for a loan or not. Different lenders will have different requirements set and depending on the type of loan you are getting, there may be additional requirements that you must meet. You will feel more confident about your chances of approval though when you know what is expected of you.
Your Credit History Matters a Lot
Your credit report shows a record of all the credit transactions and applications you have made were you are given a respective score. Actions where you have made a lot of credit applications before, have been rejected for a loan application, or have made late payments on a loan or a credit card can have a negative effect on your credit score.
The Right Credit Type is Crucial
The key to getting a good chance of a loan approval is choosing the right products to fit your current needs but your current financial standing as well. Depending on your circumstances, some lenders may be able to lend you a large sum or a smaller one. Some may even require you to apply for a secured loan.
Borrowers with a poor credit history will do best by asking for a smaller amount. Never borrow more than you need and most importantly, never borrow more than what you can afford to pay back. You’ll need a good reason for the loan as well as lenders would want to know how you intend to use the money lent to you.
Expect to be Asked for Documentation
Some lenders might need you to show additional documentation in processing the loan application. Among the most common things you will likely be asked to present are monthly bills, bank statements, as well as details of your expense and income. Lenders will also want to verify your personal and financial details so they know that you are exactly who you say you are.
Start with Your Bank
If you happen to have a savings or checking account with a bank and have been with them for so many years, you always have the choice to start your loan application from there. The bank knows you and can see how much you have been paid all these years along with the standing orders or direct debits under your name. This could give you a bigger chance at loan approval.
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