Consumers warned to be careful about doorstep lenders
July 14, 2008
It seems that some doorstep lenders are enjoying a healthy year this year, as the global credit crunch continues to take its toll on households, and an increasing number of consumers, such as those with damaged credit or low incomes, find it increasingly difficult to get credit through mainstream lenders. The credit crunch has resulted in far tighter credit conditions coming into effect, and this has resulted in some people being forced to take finance from doorstep lenders.
However, some industry officials are urging consumers to think twice before accepting finance from a doorstep lender. Officials state that doorstep lenders usually target those on low incomes and with bad credit who cannot get credit elsewhere. Consumers are then charged extortionate rates of interest on their borrowing, and for many this leads to spiralling debt and increasing financial problems.
The Housing Corporation recently warned consumers who were thinking of turning to doorstep lenders: “If you borrow from doorstep lenders, you risk the roof over your heads in return for a day’s happiness.” Another official said: “Doorstep lenders exploit poor families’ inability to get credit from more mainstream lenders, and they cover their risk in lending to the less well off by charging punitive interest rates.”
Credit unions could prove to be an effective solution for some. One official said: “Credit unions offer a great alternative to money shops and payday loans for people needing small loans over relatively short periods. Credit unions charge no more than two per cent on the reducing balance of a loan and many charge just one per cent, which would mean that £1,000 taken out for a month and paid back weekly would accrue just £5.76 in interest at one per cent.”
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