Citizens Advice reports rise in guarantor loan problems

The number of guarantor loan problems Citizens Advice has helped people with has risen by 40% over the last year, latest figures show.

When taking out a guarantor loan the borrower gives the name of a guarantor, normally a friend or family member, who is then pursued for payment if the borrower can’t repay.

Last year Citizens Advice helped people with over 2,000 guarantor loan issues.  Between October and December 2016, it dealt with nearly 600 problems - a 40% rise compared with the same period in 2015 (400 problems).

This included cases where people were hit with shock debts totalling thousands of pounds after guaranteeing a loan that the borrower failed to repay. In many cases guarantors were not aware of the risks they faced should the borrower get into difficulty.

Citizens Advice helped one man who was asked by his daughter to guarantee a £2,000 loan she took out online. He told his daughter that he would, but wasn’t contacted by the firm to sign any paperwork and didn’t realise he would be liable if she missed repayments. When his daughter failed to make repayments, the man - who was unemployed - couldn’t afford to pay the debt off.

A woman also contacted Citizens Advice for help after her bank pursued her for payment for a loan taken out by her son’s ex partner. When she agreed to guarantee the loan, it was not explained to her that she would be liable if she failed to pay. She struggled to make the £300 monthly repayments on top of her other household bills.

Citizens Advice wants a requirement for all lenders to provide guarantors with a letter of agreement - so they understand what they are signing up for.

Citizens Advice Chief Executive Gillian Guy, said:

"Friends and relatives are unknowingly trapping themselves with enormous debts.

"Agreeing to guarantee a loan for someone else carries a big risk of being hit with an unexpected debt - but too often people are unaware of the danger they are placing themselves in.

"All potential guarantors should be given a written agreement so they know exactly what they could be expected to repay and when.

"The FCA’s measures to tackle payday loan problems have cleaned up the market significantly  - but other forms of high cost credit, such as guarantor loans, still pose a risk.

"Extending the payday loan cap on interest rates and fees across all high cost credit products would protect even more consumers."

Last week Citizens Advice submitted evidence to the Financial Conduct Authority’s review into the high cost credit market - highlighting problems in the guarantor loan, doorstep lending and rent to own sectors.

Notes to editors

1. The Citizens Advice service comprises a network of local Citizens Advice, all of which are independent charities, the Citizens Advice consumer service and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more see the Citizens Advice website.
2. The advice provided by the Citizens Advice service is free, independent, confidential and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality.
3. To get advice online or find your local Citizens Advice in England and Wales, visit citizensadvice.org.uk
4. You can get consumer advice from the Citizens Advice consumer service on 03454 04 05 06 or 03454 04 05 05 for Welsh language speakers.
5. Local Citizens Advice in England and Wales advised 2.5 million clients on 6.2 million problems in 2014/15. For full service statistics see our publication Advice trends.
6. Citizens Advice service staff are supported by more than 21,000 trained volunteers, working at over 2,500 service outlets across England and Wales.