So-called guarantor loans have the potential to be "just as damaging" for borrowers as payday loans, Citizens Advice is warning.

The loans involve friends and relatives being asked to pay off the debt, if the original borrower fails to do so. But many such guarantors are unaware they are signing up for large debts, said Citizens Advice. The loans - which carry interest rates of up to 46% a year - are aimed at people with poor credit histories.It is thought that more than 50,000 people a year take out such loans, which can be repaid over periods as long as five years. The family members or friends who guarantee the loans can be legitimately pursued by debt collectors, even in cases where the borrower has died.....Read more here

As a result, Citizens Advice said guarantor loans now "have the potential to be just as damaging" as payday loans.

It wants the FCA to make sure that:
  • Guarantors are given a letter of agreement, and a cooling off period
  • Loan providers put a liability warning on marketing material
  • Lenders have to direct borrowers to free independent debt advice.


The FCA said it agreed that guarantors should be treated like customers.
It said they deserved to be treated fairly and they should be given adequate information before signing up to such loans.