- Emma Anderson
- October 1, 2020
Although there are various short-term loans, payday loans and doorstep loans are very popular. Since both types of loans are small loans, the disbursal limit cannot be over £2,500. Payday loans are those loans that are due on your next payday. It means you will have to pay off the entire debt within two weeks or maximum four weeks.
Doorstep loans, also known as loans at home, are loans that you get delivered at your doorstep. Now that you have got to know the definition of both types of loans, the next step is to dig out more details.
Everything about payday loans
Among all short-term loans, payday loans are the most common loans and used by millions of Brits every year. One of the significant reasons for the highest demand of these loans is easy accessibility.
Although other loans are processed online too, they may have much more formality in processing than payday loans. Payday loans are also known as 24 hour payday loans because you can get funds within 24 hours.
Note that you must have at least £500 net monthly income, must be employed for a long time, have an old bank account and should not recently have a cheque bounced to get it signed off on.
Another reason for the processing of payday loans is they aim to help bad credit borrowers and therefore they exclude the process of a credit check. It means taking out or repaying a payday loan will neither hurt nor help your credit rating.
Although there are a few direct lenders that can allow you to borrow £1,000 or maybe more, the standard size of these loans is generally between £300 and £1,000.
According to a study, Brits spend 43% of their disposable income within 24 hours of pay day, which is why most of the people rely on these loans. The surprising and distressing fact of this picture is people fall to the temptation of these loans to meet their recurring expenses instead of funding unforeseen expenses. Here are some of the facts that the study revealed:
- 24% of Brits spend on takeaway.
- 27% spend on food shops.
- 12% spend on pubs.
- 20% spend on new clothes and 16% on dine out.
Here are the pros of 24 hour payday loans:
- The processing speed of these loans is faster than other small loans. You can get funds directly in your account within 24 hours.
- These loans generally target bad credit borrowers, so you do not need to go through a credit check. It means applying for a payday loan will not have an impact on your credit file.
- Since the amount is small and you have to pay in a lump sum, you can get rid of its burden.
Here are the cons of 24 hour payday loans
- Even though you make the repayment on time, it will not improve your credit score. However, if you fall behind the due date, it will take a toll on your credit rating.
- As the lender does not run a credit check, these loans are likely to carry high interest rates. You can expect to pay between £15 and £30 for every £100 you borrow.
- If you continue to roll over a loan, you will end up falling into a debt trap.
Everything about Doorstep Loans
A doorstep loan is not a particular type of loan product. It is rather a service. Any small loan – in fact a payday loan – delivered at your doorstep is a doorstep loan and hence called loans at home. The size and the term of these loans is also very short. However, these loans specifically target the unemployed, the disabled and the retired.
When you put in a loan application, a representative of the lender will visit your home at a scheduled time to look over your bank statement and affordability. If everything goes fine, the representative will decide the disbursal limit on the spot and lend you money. These loans require neither guarantor nor collateral even though you have a poor credit rating.
Note that doorstep loans are not very cheap. Although Financial Conduct Authority, according to a report, has noticed a significant plummet in the number of loans and the overall amount borrowed by 35% compared to that of five years earlier when the interest rate was capped at 0.8% of the outstanding principal per day, high cost credit has not gone away entirely.
It is believed that the demand for these loans is likely to go up because of a surge in the number of unemployment people due to the pandemic, and as a result, many people are more likely to default. Yet, you will not get a loan at beyond interest-rate caps.
Here are the pros of doorstep loans
- You can get funds at your doorstep, the most convenient way of getting a loan.
- You can have these loans approved despite a bad credit score.
- There is no chance of getting money more than your affordability because the representative will scrutinise your bank statement.
Here are the cons of doorstep loans:
- These loans can be very expensive. It may also involve the representative fees.
- You cannot borrow a large amount of money.
There is nothing wrong about borrowing money, but you should be cautious. You should borrow small loans to fund unexpected expenses. Try to track your spending to save more and spend less, set aside at least 10% of your monthly income as you receive your pay cheque, and cut back on discretionary expenses.