Cash-strapped Britons are grappling with £ 1billion in guarantor loan debts, more than double what they were three years ago.
A BBC Panorama survey found that the number of people seeking help from the Citizen’s Advice charity with these debts climbed to 3,000 last year.
This is twice as many as three years ago.
Secured 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 the repayment of the loan if the borrower cannot.
This means that the borrower and the guarantor are responsible for the debt.
Why we want to stop the credit scam
WE never want you to pay more than double the amount you 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 hire-purchase and home-based loans at double the price or amount of the original loan in March.
In a WIN for the campaign, in November, the financial regulator revealed its intention to cap the fees charged by fraudulent 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 these lenders has more than halved, according to Citizens Advice.
People with the lowest incomes, living in the poorest places, pay a poverty premium – up to 7 million people have used high-cost credit, according to the Ministry of Work and Pensions.
People whose salaries or benefits don’t go far enough need to borrow from home lenders or lenders to help pay for things like an unexpected bill or to furnish their home.
These come with exorbitant interest rates – over 1,500 percent in some home loan cases.
It is scandalous that a mother who borrowed money to help keep a roof over her family and ended up paying back more than THREE times the original amount.
It’s time to stop the credit scam.
The largest lender of guarantor loans is a company called Amigo.
By 2017 Emma – a case study on the show – had already borrowed £ 8,500 from Amigo and was still making repayments of almost £ 200 per month.
Wanting to book a vacation, she decided to apply for what has become her fourth loan.
She said: “It was really simple, I had a guarantor and we both filled out the paperwork and I think within 24 hours the money was paid out.”
Emma borrowed £ 10,000 – using about half to pay off her existing Amigo debt.
But with the added interest, she is expected to repay more than £ 23,000 over the five-year life of the loan, more than double the original amount.
Amigo told the program that he goes through a strict vetting process before lending money, including affordability assessments.
Emma and her guarantor both filled them out, demonstrating that they were able to make the monthly repayments.
But it is clear that people are borrowing more than they can afford.
Treasury Minister John Glen told Panorama: “What I disagree with, and some say what you should do is just ban everything.
“I don’t think that as a minister in Whitehall I should sit down and just ban large areas of credit provision.
“What I need to do is look for ways to expand more affordable credit options.”
An Amigo spokesperson commented, “Amigo is not a high cost short term lender.
“Our APR is similar to that charged by credit unions, which also provide a mid-priced product.
“We offer clients an entirely different product from payday lenders and operate in an entirely different market. “
The Sun understands that Amigo provided Panorama with detailed information on both client case studies, including written and verbal evidence of recorded conversations with the guarantor and the borrower which shows that they were fully aware of their responsibilities and obligations.
Alternatives to high cost credit
If you have serious money problems, here are a few other places you can turn for help:
Credit unions – These are small non-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 qualify for by searching here.
Request an advance – You can ask your employer to give you an advance on your salary, or the JobCentre Plus may be able to arrange a short-term advance on your first benefit payment.
Food banks – These organizations help provide emergency food and toiletries to help you through payday. You can see if you qualify at the nearest branch here.
Check your benefits – Make sure you get all the benefits you are entitled to by using this calculator from the charity Turn2us.
Freecyle / Facebook / Gumtree and eBay groups – You may be able to find free or cheap second-hand furniture.
Boost Your Credit Score – If you’re never turned down for credit, there are ways to show lenders that you can be responsible for your money.
Panorama has also spoken to a number of people who depend on payday loans to get by.
These are short-term loans, traditionally carrying astronomically high interest rates.
In its heyday, Wonga – once the market leader in payday loans – charged 5835% interest on loans each year.
In 2015, the financial watchdog put a cap on payday lenders’ fees so that a borrower never pays more than 100% interest.
As a result, Wonga went into administration, but other lenders still offer payday loans.
Greg told the show he initially borrowed £ 300 from payday lender Quick Quid in January, but after his income changed he borrowed more money from several lenders.
In total he had eight payday loans and had borrowed £ 2,630, but with interest rates and fees added he owed over £ 4,000.
Greg said, “I hate watching it… Quick Quid clearly knows I’m having trouble paying the loan.”
BBC Panorama’s investigation showed that there were 42 Financial Ombudsman Service decisions upheld against Quick Quid.
They all rejected the company’s argument that it has been lending responsibly since 2015.
Quick Quid says the ombudsman continues to change the way he handles complaints.
He says he lodged his own formal complaint about this “inconsistent approach”.
You can watch the full report – BBC Panorama: Easy Money, Tough Debt? Monday June 17 at 8:30 p.m. on BBC One.
The Sun has reached out to Wonga’s admin for comment and we’ll update this story if we get a response.
Currys and Littlewoods are among companies banned from charging scam interest of up to 45% on store cards and catalogs.
While new rules mean your credit card could be put on hold if you don’t pay off your debts.
But payday loan borrowers still have to pay DOUBLE the amount loaned.
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