Door stop lending is the term used to describe banking institutions who primarily lend small cash sums to their clients through a process of visiting them at their homes. Because the cash sums lent are initially low (as little as £50-100 cash), door stop lenders can afford to lend to people with poor credit histories. Generally a representative from the lender will visit the borrower each week to collect the repayments due. In this way, the bank and the client often develop a personal relationship. Door stop lenders also build in protection against the possibility of non payment by charging their clients higher than average interest rates. Rates will often be between 40-50% so there is a significant margin to cover a higher than average non repayment rate.

There are a number of advantages for people who consider borrowing from door stop lending companies. The first is that individuals who would normally be turned down by other lenders can borrow cash despite having a poor credit history. This is not to say however that door stop lenders do not work to their own strict lending criteria. One of the largest such lenders reportedly refuses 60% of all the requests to borrow funds that it receives.

The repayment terms used by doorstep lenders can also be an advantage. Generally repayment is on a weekly basis with the lenders representative coming to the borrower’s home to collect the cash repayment. This method of collection can be extremely helpful because the amount collected each week is relatively small and therefore manageable. This system helps the borrower to budget for the repayments particularly as many borrowers using door stop lending services are paid on a weekly basis.

Of course, there are also disadvantages to using doorstop lending. The main one of these is the high rate of interest charged. This is of course to be expected as cash is often lent to people with poor credit ratings who are a high risk and cannot borrow anywhere else. However, the rates charged and total amounts to be repaid are not hidden. Arguably they are made clearer to potential borrowers than more traditional bank loans. For example, the total amount to be repaid on any money borrowed from a door stop lender is normally clearly written down in the borrower’s repayment book. If £100 is borrowed to be paid back at £5 per week for 30 weeks, the total to be repaid of £150 is clearly displayed in the repayment book.

The other significant issue with door stop loans is the fact that repayments are made weekly. As such, the total amount being repaid each month is often overlooked. Because the loans are generally repaid over relatively short periods, client’s who borrow larger sums (for example £1000-£2000) can often end up paying more than £50 per week a month in repayments (i.e. £200 per month plus). Once repayments get to this level, problems can occur particularly as many door stop lending clients are on lower incomes. The weekly payments seem low. However, when they are added together into a monthly sum, they are actually far more than the borrower can realistically afford to repay based on their monthly income. Borrowers can therefore find themselves in a cycle of debt where they need to continue to borrow to maintain payments to earlier loans.

As with all forms of credit, the argument as to whether door stop lending is of benefit or not will largely depend on the nature of the borrower. The lending terms are normally very clear and therefore as long as a borrower understands their own financial position and their ability to repay the loan, door stop lending can be a very useful tool for many people. However, there is always the possibility that too much will be lent to someone who does not have sufficient income to realistically repay the loan. As such, repayments will inevitably start to be a problem.

Whether good or bad, it certainly seems that door stop lending is here to stay as this is generally a very profitable area of the banking world. One of the largest door stop lenders in the UK reported pre-tax profits of £128.8 million for 2008. This was an increase of 11% from £115 million in 2007.