Home credit loans – or doorstep selling – are provided directly to customers’ homes by lending agents who return each week to collect repayments. Loans are typically from £100 to £1,000. While the APRs on these loans are variable, some can be as high as 1,557%.

Citizens Advice is urging the Financial Conduct Authority (FCA) to extend the rules that cover payday loans to the doorstep lending market to help save consumers £123m in interest payments on up to 540,000 loans each year.

More than 1.6 million people use home credit loans in the UK, making it one of the largest high-cost credit markets.

But Citizens Advice said home loan customers are more likely to have a long-term health condition, or disability, be behind on essential household bills such as council tax or water, and just a third are in employment.

As such, it wants to see a limit brought in on the number of times each loan can be refinanced and steps to ensure customers never repay more than twice the amount borrowed.

These rules already apply in the payday loan industry and the charity said it has seen a dramatic reduction in the number of people coming to it looking for help in managing the debts.

‘Spiral of debt’

Citizens Advice said it is concerned that irresponsible lending and the increased cost of borrowing due to refinancing is pushing home credit users into a spiral of debt.

It found these consumers end up paying back more than twice what they borrowed on up to 490,000 home credit loans each year due to refinancing.

Further, its research suggests some lenders are failing to protect consumers as proper affordability checks are not carried out. It wants clarification for providers about what the checks should include to prevent people borrowing money that they can’t afford to repay.

In one case seen, a person with severe learning disabilities came to Citizens Advice with home credit debts of £3,016. The lender offered them further credit despite being advised by their social worker that an appropriate adult needed to be present for financial decisions.

Gillian Guy, chief executive of Citizens Advice, said: “There’s no questioning the evidence – the FCA’s cap on payday lending has been a success. But it’s time now to address the problems consumers are facing in the home credit market.

“Home credit customers need to be protected from getting into problem debt. They are susceptible to the high cost of these loans because of easy refinancing – and there is currently no total limit on what they repay.

“The FCA should build on the success of the payday loan cap and extend their definition of high-cost short-term credit to include home credit, making sure that no-one pays back more than double what they borrow.”