Fiona Phillips investigates the shocking truth behind high interest secured loans
People are being warned about the risks of high-interest secured loans after the number of requests for help has doubled in two years.
In the 12 months leading up to May, Citizens Advice saw 3,000 people in debt, whose family or friends are responsible if you fall behind – up from 1,500 in 2017.
The numbers come like a Panorama probe called Easy Money, Tough Debt? aired tonight.
On the show, Mirror columnist Fiona Phillips asks Treasury Minister John Glen why the 2015 cap on payday loans that killed Wonga and Wageday does not apply to other types of loans.
She also speaks to victims, including Carl Davies – who ‘felt suicidal’ after being weighed down by his ex-wife’s £ 5,000 debt and an APR of 49.9% that took it to 12,000. £.
And social worker Emma Walsh, whose family guaranteed her £ 10,000 loan, talks about how she now struggles to find the £ 395 a month needed to pay her final £ 23,000 bill.
Emma says, “They pretend to be your friends but they are ruthless.”
Since 2015, a new generation of unregulated guarantor lending companies – offering unsecured loans where clients appoint someone else to pay if they don’t – have experienced a 500% business boom.
Bournemouth-based Amigo Loans has an 88% market share and profits have climbed 70% in recent years.
Speaking to Fiona, Mr Glen said: “I have discussed this category of guarantor loans with the Financial Conduct Authority and they are monitoring.”
And on a promised breathing space program, he adds: “The legislation is being introduced this year, although it won’t go live until 2021.”
But it’s too late for computer technician Carl, 36, from Doncaster. He says that four months after their split, ex-wife Rachael persuaded him to guarantee his £ 5,000 loan with Amigo in February 2018.
He said: “I said I was not happy but she said she would not let me see my son. She vowed that she would continue the payments of £ 197 per month for five years.
In May 2018, Rachael defaulted on payment.
Carl said, “As far as I know they have abandoned Rachael and are only harassing me now.” If I had known the level of responsibility I had on this loan, I would not have accepted it.
Amigo said Rachael’s creditworthiness was within guidelines and the plaintiff and guarantor were given the same checks.
He also maintains that his 49.9% interest rate is fair because he deals with two clients rather than one and they only ask a guarantor to step in until 14 days after a default.
Emma, 36, from Tredegar, Wales, earns £ 16,000 a year and took out her first loan of £ 2,000 in 2015.
She was then offered a top-up loan, which raised her to £ 5,000 in 2016.
But the following year his loan was increased to £ 10,000.
Emma says, “I should never have borrowed more. I was off work after contracting meningitis and missed a month’s repayment.
“It was then that I felt the full strength of Amigo and my surety was harassed daily.
“We can barely afford to eat now and I’m afraid for the future. “
Citizens Advice chief Gillian Guy said: “Agreeing to guarantee a loan for someone is not a decision to be taken lightly.”
Graham Hiscott, Commercial Director of the Daily Mirror, says:
It’s one thing to tell yourself that you would help if your child, another parent or friend was going through a difficult time, it’s another to make a commitment.
Yet this is what you do with secured loans. By accepting, you’ll be on the hook if the borrower falls behind.
And that’s more than possible.
Market-leading Amigo Loans recently said 95% of loans were either up to date or less than 31 days past due. But 10% of the refunds are made by the guarantors.
The idea of such loans is justifiable in some ways – helping someone who may have a sparse credit history to borrow money. Amigo says it “exists to help supply financial borrowers excluded by traditional lenders.”
But it is not cheap. Amigo charges an annual interest rate of just under 50%. So think carefully before signing up to become a guarantor.
Consider other options if necessary, but most importantly, be aware of what could happen.
- Panorama: easy money, difficult debt? is Monday at 8:30 p.m. on BBC1.