On the face of it, guarantor loans are a great idea. You know you can afford the repayments, but you have a chequered credit history, so you can’t get a loan from any high street lenders or banks. You struggle even with the bad credit loan providers who do not want to lend to you, so what do you do? You ask someone, a friend or relative who trusts you to be a guarantor for a loan.
Being a guarantor for a loan means that you are saying that if your friend or relative that borrowed the money, cannot afford or stops making payments, you will make the payments for them each month or week.
You have to really trust someone to be a guarantor for a loan as things can go really wrong, really quickly. If we consider that a lot of guarantors are sort of, bullied, into becoming a guarantor and really do not want to do it. After all, why would anyone actually “want” to be a guarantor? There is no upside, just the risk that you will end up taking on someone else’s debt!
Yet, Guarantor lending is massive in the UK. Amigo Loans claim to have around 400,000 customers. That means that there must be 400,000 guarantors who are prepared to cover someone else’s debt should they not pay. Amigo Loans refund claims are growing in number very quickly as more and more borrowers realise that they could not afford the repayments and they are under increased pressure from their individual guarantors as things are going wrong with repayments and Amigo Loans are now expecting the Guarantor to make that monthly instalment.
Amigo Loans are not alone in the Guarantor Loans market. The other players include:
They all operate in the same way and all charge about the same outrageous APR (interest rate) of around 50% per annum.
At Redbridge Finance the days are spent complaining to guarantor loan lenders about their unfair lending and irresponsible lending practices. Redbridge Finance is contacted by many people every day who are either unhappy borrowers or unhappy guarantors. The message is normally pretty much consistent, I cannot afford the repayments or I do not want to be a guarantor anymore.
The good news is that a complaint can be made to the lender and if the complaint is upheld, there will be a refund of interest paid and 8% interest. If the complaint is not upheld, the case can be referred to the FOS (Financial Ombudsman Service) who can make a legally binding decision and force the lender to make a refund.
The bad news is that there is no way to force a lender to release a guarantor from being a guarantor. If you think about it from the lender's perspective, why would they release a guarantor? They have a borrower legally committed and as a backup, they have a guarantor who is legally obliged to make the payment if needed.