What Happens If You Can’t Pay Back a Doorstep Loan?

A doorstep loan is a small loan typically aimed at helping you stay afloat when money is tight. You do not have to undergo a lot of paperwork to get the nod for doorstep loans in Ireland. In fact, payments can be collected on your doorstep if you choose for it over direct debits. It sounds convenient to get a loan when you are in a tight spot, and hence, these loans seem too good to be true.

Well, a few lenders are still out there that provide doorstep service. These loans do exist and are offered with fewer conditions. They carry a small sum of money, usually not more than €500, that is paid back in a lump sum on the due date. The repayment length of these loans is not more than a month.

Unfortunately, many people struggle to pay them back on time because of a lack of good judgment about repaying capacity. Even if a lender lets you pay down in weekly instalments, it will not be worthwhile, thanks to added fees. There will be hell to pay when you do not pay off your doorstep loan on time.

• Fees and penalties will be added

Your lender will not report your missed payment to credit reference agencies unless 30 days are over. However, you will be charged late payment fees and interest penalties that quickly add up the cost of the debt. It is just the tip of the iceberg.

Complications arise even more when you make a default a second time. Not only will you be levied penalties, but you will also lose your credit points too. Your lender will report delinquency to credit bureaus if the payment is due for more than a month. After three months, you will be declared a defaulter.

• Your credit score will be damaged

Each time you make a default, your credit report will lose points. No matter how excellent your good score was before applying for a doorstep loan, it will drop to the “very poor” category as a result of a knock-on effect. Each missed payment will be recorded, and your credit points will be further lowered. Missed payments will stay on your credit report for six years, which means you will have to bend over backwards to bounce back.

• You cannot get the best deals next time

When you apply for loans online in Ireland down the line, you will not be able to get the nod for affordable interest rates. You will most likely be turned down. Lenders who accept your application will restrict the borrowing sum and charge very high interest rates. You will put yourself in jeopardy if you still decide to borrow money. You can even fall into a deep debt hole.

• You will be declined for personal loans

Sometimes, you come up with borrowing a larger sum. You may need money for your vacation, medical bills or home renovation. The chances of being approved are bleak because personal loans are not secured. Lenders generally prefer to loan to someone with a good credit score.

If somehow you manage to get approval, the loan deal will be extortionately expensive. Unsecured loans are quite expensive despite a decent credit report because lenders cannot access to your personal property to get money back in case of a default.

• You will find the lender on your doorstep

Not all lenders follow ethical practices. Once your account goes into default, your will lender will hand you to the collection agency which will be chasing you to get money out of your pocket. However, if you borrow money from an unregistered lender, you will find them on your doorstep.

In fact, they can use their power to threaten you right from the beginning of the first missed payment. They will badmouth you and bash you in front of your neighbourhood. Your reputation will be on the line. The consequences can be worse than your imagination.

• It will cast a shadow over your mortgage and car loans

Once your credit report is crippled, it can take years to fix it. You cannot see those entries in your credit report go off until six years, which means you cannot qualify for lower interest rates. If you apply for a mortgage or an auto loan, you will have to arrange a larger down payment.

• A mortgage needs a down payment of 40% of your house’s market value.
• For an auto loan, the deposit size will be 20% of the value of your car.

Even though those entries are old, you cannot get these loans at affordable interest rates. As long as they are on your credit file, they will always keep haunting you. Your chances of getting the most attractive deals are almost nil.

How to protect yourself

• You should try to avoid using doorstep loans if you are not sure about your repaying capacity.
• Make sure you compare interest rates before accepting an offer in the first place.
• You should ideally avoid doorstep service because it adds a lot of fees. It adds up to the amount of debt.
• Use doorstep loans only for one-off costs. Never make the mistake of using these loans for recurring expenses.
• Borrowing money from your friends and family if you are in a tight spot.

The bottom line

If you fail to repay a doorstep loan, you will have to pay interest penalties and late payments. In addition, your credit score will significantly drop. You will struggle to borrow money at affordable rates down the track.

The damaged credit file will have long-lasting effects. For the next six years, your missed payments will continue to appear on your credit file, closing all doors for you to access better deals. Therefore, it is advisable to borrow money only when you are completely sure about your repaying capacity. Take help from your parents if you cannot make payments and you still need money.