THE number of people struggling with guarantor loan debts has doubled over the past three years.
An investigation by BBC Panorama found that the number of people asking Citizen’s advice for help with these debts rocketed to 3,000 last year.
1 Emma Kerry’s guarantor loan spiralled leaving her to pay back £23,000 for a £10,000 loan
Guarantor loans are one of the fastest growing ways for people with poor credit histories to access money.
They work by allowing a friend or relative to guarantee loan repayments if the borrower can’t.
This means that both the borrower and the guarantor are liable for the debt.
The total amount borrowed using these kinds of loans is approaching £1billion – more than double what it was three years ago.
Why we want to Stop The Credit Rip-OffWE never want you to pay more than double the amount you’ve borrowed – whether it’s for a new sofa or a loan to help pay your bills.
That’s why The Sun launched its campaign calling for a cap on the total cost of rent-to-own loans and doorstep lending at double the original price or loan amount back in March.
In a WIN for the campaign, this November the financial regulator revealed plans to cap the fees charged by rip-off weekly payment stores from April 2019.
A similar cap was introduced for payday loans in 2015 and since then the number of people struggling with unmanageable debts to those lenders has more than halved, according to Citizens Advice.
People on the lowest incomes, living in the poorest places, are paying a poverty premium – up to 7million people have resorted to high-cost credit, according to the Department for Work and Pensions.
People whose wages or benefits don’t stretch far enough need to borrow from rent-to-own or doorstep lenders to help pay for things such as an unexpected bill or to furnish their homes.
These come with exorbitant rates of interest – more than 1,500 per cent in some cases of doorstep lending.
It is scandalous that one mum who borrowed cash to help keep a roof over her family’s head and ended up paying back over THREE times the original amount.
It’s time to stop the credit rip-off.
The biggest lender of guarantor loans is a company called Amigo.
In 2017, Emma had already borrowed £8,500 from Amigo and was still making repayments of nearly £200 pounds a month.Wanting to book a holiday, she decided to apply for what became her fourth loan.
She said: “It was quite simple really, I had a guarantor and we both filled in the paperwork and I think within 24 hours the money was paid out.”
Emma borrowed £10,000 – using around half of it to help pay off her existing Amigo debt.
With interest added, she would have to pay back more than £23,000 over the five-year life of the loan – more than double the original amount.
Amigo says it goes through a strict vetting procedure before lending money, including “affordability assessments.”
Both Emma and her guarantor “completed” these, demonstrating they were able to make the monthly repayments.
But clearly people are borrowing more than they can afford.
Treasury minister John Glen told Panorama: “What I don’t agree with, and it’s said by some that what you should do, is just ban everything.
“I don’t believe that I, as a minister in Whitehall, should sit and just ban vast sectors of provision for credit.
“What I need to do is to look at ways of expanding more affordable credit options.”
Alternatives to high-cost creditIF you’re in serious money trouble then here are some alternative places where you can go to for help:Credit Unions – These are small not-for-profit groups that help people save and borrow money, and you may be able to get a loan. You can find out which credit union you are eligible to join by searching here.
Ask for an advance – You can ask your employer to give you an advance on your wages, or the JobCentre Plus may be able to arrange a short-term advance on your first benefit payment.
Foodbanks – These organisations help provide emergency food and toiletries to see you through to payday. You can see if you qualify for your nearest branch here.
Check your benefits – Make sure that you are getting all the benefits that you are entitled to using this calculator from the charity Turn2us.
Freecyle/Facebook groups/Gumtree and eBay – You maybe able to find free or cheap second-hand furniture.
Boost your credit score – If you’re never rejected for credit then there are ways to show lenders that you can be responsible with your cash.
Panorama also spoke to a number of people relying on payday loans to get by.
These are short-term loans, traditionally with astronomically high interest rates.
At its peak, Wonga – which used to be the market leader for payday loans – was charging 5,835 per cent interest on loans annually.
In 2015, the financial watchdog put a cap on payday lender charges so a borrower never pays back more than one hundred per cent in interest.
As a result, Wonga went into administration, but other lenders are still offering payday loans.
Greg initially borrowed £300 from Quick Quid in January, but after his income circumstances changed, he borrowed more money from several lenders.
In all, he had eight pay day loans and had borrowed £2630, but with interest rates and charges added he owed more than £4000.
Greg said: “I hate looking at it… Quick Quid clearly know I’m struggling to pay the loan.”
The BBC Panorama investigation showed that that between February and April this year, there were 42 rulings upheld against Quick Quid, all rejecting the company’s argument that it has been lending responsibly since 2015.
Quick Quid says the Ombudsman’s Service keeps changing the way it handles complaints.
It says it has made its own formal complaint about this “inconsistent approach”
You can watch the full report – BBC Panorama: Easy Money, Tough Debt? on Monday June 17 at 8.30pm on BBC One.
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The Sun’s Stop the Credit Rip-off campaign wants to put an end to extortionate credit deals
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