In its publication “A problem shared?”, Citizens Advice has commented that guarantor loans have the potential to be “just as damaging” as payday loans. The loans often involve friends and relatives as guarantors who can be asked to pay off the debt if the borrower defaults. The loans, which have average interest rates of 46.3%, are often marketed at borrowers with poor credit histories.
Citizens Advice say that 43% of guarantors who sought help from Citizens Advice were unsure of the extent of their responsibilities, and because guarantors were not regarded as ‘customers’ by regulators, they miss out on basic protections most debtors would receive. Since January 2015, payday lenders have been subject to an interest rate cap of 0.8% per day of the amount borrowed, but some guarantor loans fall outside of this cap. The guarantor loan market is now worth £154 million.
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