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payday loan refunds

Reclaim mis-sold guarantor loans for free

Get £100s or £1,000s back for being mis-sold or treated unfairly without using a claims firm

Amalia Illgner
Amalia Illgner | Edited by Johanna Noble
Updated 17 November 2020

Do you currently have a guarantor loan that you're struggling to repay? Or did you have one in the past? Did your lender offer you the loan without checking your finances properly or were you asked to be a guarantor without getting all the facts? If so, you may be able to reclaim £1,000s. In this guide we'll run you through what counts as mis-selling and how to make a reclaim – if you already know what you're doing, use our FREE reclaim tool to make a claim.

This is the first incarnation of this guide. Please tell us your experiences in the guarantor loan reclaim discussion.

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What is a guarantor loan?

If you can't get a loan because of past credit problems or you have little or no credit history, one option is to ask a family member or friend to step in and be your 'guarantor' so you can take out a so-called guarantor loan. This means they will be responsible for making your payments if you can't.

Guarantor loans are a very expensive way to borrow. While their interest rates – around 50% APR – are not as high as the up-to-1,250% APRs charged on payday loans, like those loans, guarantor loans are approved quickly, typically within 24 hours, and are marketed to borrowers with poor credit histories.

Guarantor loans are typically for sums between £1,000 and £7,500, and sometimes as much as £12,000. Mostly they are repaid over a period of between one and five years, meaning interest payments can be enormous. And...

Guarantor loans are expensive – you can end up paying back £175 for every £100 you borrow.

A typical example would be Amigo Loans, which is the biggest lender in the guarantor market. It charges 49.9% APR on a typical loan. This means that if you borrowed £5,000 over three years, you'd need to pay back £8,782.20. In other words, for every £100 borrowed, you pay back £175.

So even though the APR is comparable to some high interest credit cards, unlike a credit card you don't have the flexibility to clear the debt without interest as you'd always pay interest from the second you take out the loan, which means you'll almost always be paying more

Nine in 10 complaints about guarantor loans are successful – that's even higher than for PPI

The Financial Ombudsman Service's (FOS) latest complaint figures show that it found in favour of the customer in 88% of guarantor loan cases that it looked at. This is among the highest rate of complaint success out of any category the ombudsman oversees – even higher than payday lending and PPI. The FOS said: "The behaviour we've seen from some lenders is simply not good enough".

Are you the borrower? You may be due cash because of mis-selling or if you were treated unfairly

Given the huge problems in this industry, as well as mis-selling, you may also be due money back if the lender treated you poorly, eg, by failing to put in place a payment plan if you were struggling. Let's go through when you may be able to claim.

Were you mis-sold? The BIG sign is if you can't afford to repay the loan (as they probably didn't check if you could)

If you are struggling to repay your guarantor loan or can't comfortably afford it, and you haven't had a significant change in circumstances since you took the loan out, you might have been mis-sold.

A loan (and any top-up) is deemed unaffordable if it leaves you so short that you fall behind with bills or you need to borrow more to keep up with repayments. It's that simple and is why a lender needs to do the checks of your income, savings and other debts. See 'how lenders should check affordability' below for how they should do this.

This isn't just best practice, it's something the lender has to do to follow rules imposed by the Financial Conduct Authority (FCA) – the body that regulates financial firms.

Important: It doesn't matter whether you have an ongoing loan or you've already paid it off, you can STILL make a reclaim – as long as you raise the case within six years of taking out the loan.

  • How lenders should check affordability

    It may not be clear to you whether your lender has or hasn't checked these things, so all you need to go on is "was the loan affordable when you took it out". This is what the lender's meant to check:

    1. It should check your expenditure. You may have said your outgoings were too low because you guessed, filled out the application too quickly or were just desperate and your lender didn't verify your numbers. To give you a better insight, we're asking the ombudsman to tell us exactly what lenders must do and what sort of questions they should ask, about savings, debts and the proof they need to see when assessing whether a loan is affordable for you. When we have more information, we'll put it here. 

    2. It should take variable wages into account if you're self-employed. If your wages vary, your lender needs to ask about this and take it into account when checking if you can afford the loan.

    3. It must properly check your credit record. If you had other loans and debts, your lender should have seen from your credit record and would have known that your finances were not sustainable.

    4. It must check if you can afford top-up loans. If your lender offers you – or you apply for – extra loans on top of your original loan (also known as "top-ups"), your lender needs to make sure you can afford these extra payments, even if your original loan was affordable for you.

If you were treated unfairly (eg, the lender failed to put you on a special payment plan if you were struggling), you could also be due redress

Once you have the loan, you're a customer of the loan firm and it has a duty to treat you fairly. If it doesn't do this, you could have grounds for a complaint and a reclaim. While the majority of complaints are to do with mis-selling due to lack of affordability checks, the ombudsman also gets complaints about customers being treated unfairly.
 
Here are some of the reasons guarantor loan customers have successfully complained to the ombudsman on the grounds of being treated unfairly. Even if your situation doesn't fit one of these reasons, but you still feel like you were treated unfairly, you may still be able to make a successful reclaim:
 
  • Your lender didn't act positively or sympathetically when you could no longer afford the loan repayments. Even if your loan was initially affordable, if your circumstances change, your lender has a duty to treat you fairly. This means if you can't afford your repayments, it needs to work with you to arrive at a solution that is fair and reasonable. If it doesn't, you can complain.

  • Your lender used debt collection agencies without first offering other fair solutions. Some customers have reported lenders using debt collection tactics without first offering them fair solutions. Again, this is grounds for a complaint.

  • Your guarantor has been asked for payment too quickly. Your guarantor has been asked to pay before you'd missed a payment. For example, some customers have reported that their lender had called their guarantor as soon as they told their lender they were in financial difficulty – even though they were up to date with their payments.

    Here, it may be that the guarantor has a complaint too, as they could claim that they were only there to make payments if you missed one, and that hadn't happened.

How much can I get back if I'm the borrower if my mis-selling complaint or other claim is successful?

It's all about being put back to where you could have been if you'd been treated fairly in the first place.

The Financial Ombudsman says the amount awarded depends on what extent it feels the consumer had experienced trouble and upset, as opposed to what the complaint was for. This applies whether you were mis-sold or treated unfairly. We've seen reclaims ranging from £100s to £1,000s so far. You can make a reclaim as long as you raise the case within six years of taking out the loan.

And the following applies whether:

  • You will be refunded interest PLUS any fees and charges. If you make a successful reclaim, you will likely be refunded the interest, fees and charges (if you were charged those). Since the interest makes up a considerable portion of the total amount you repay, these reclaims can be sizeable.

  • You won't get the original loan amount refunded. You will still have to pay the original loan amount back, since you have already benefited from the loan itself. If you've missed payments or are still only partway through your loan, you may still be left with an outstanding balance, which you will be required to pay.

  • You can claim interest on the total amount of your refund. On top of the refund, you can claim 8% interest per year on payments from the date they were paid to the date of settlement. This is basically interest on top of interest plus any fees and charges that might have been charged. For example, if your refund was £1,000 from one loan exactly four years ago, you'd also have 8% of £1,000 (£80) added for each of the four years, so 4 x £80 = £320.

    Here's a refund example:

    If you borrowed £10,000 at 49.9% APR repayable over three years in September 2017, by September 2020 you would have paid off the loan and interest at a total of £17,566.20. If successful, your reclaim would be:   

            - £7,566.20 in interest on the loan.
            - Plus a further £1,832 which is the 8% simple interest on the interest.
            - TOTAL REFUND: £9,398.20.

  • You can request for 'black marks' on your credit report to be removed. As well as a refund, you can ask for any poor payment records on loans deemed to be 'unaffordable' to be removed from your credit report. It's not done automatically, but if you use our reclaim tool, Resolver will prompt you to request this. The credit reference agencies take instruction from the lender, so it's up to the lender to request to remove them.

Now you have an idea whether you might have been mis-sold, and know what could happen if your complaint's successful, see our tips on how to reclaim for free.

Quick questions

  • What evidence do I need to make a claim?

    Whether it's an affordability reclaim or a fair treatment reclaim, all you need is your basic identity details (name, address, date of birth), your loan reference number and a brief explanation of your situation.

    For example, if you had a number of other loans or debts, you believe you were treated unfairly or are struggling financially, you just need to describe this in your own words. (Both our template letter and free reclaim tool clearly walk you through where this information needs to go.) 

    You do not need any specific evidence to make a successful reclaim, and anecdotal evidence suggests that failure to do proper checks is so common that both lenders and the ombudsman are upholding complaints without the need for supporting documentation.

    But anything you choose to add, such as bank statements, benefit claims and statements from other debts and loans, will help. There are clear prompts in the reclaim tool to show you where to upload these.

    MSE tip: It's helpful, but not essential, if you can attach three months' worth of bank statements to your complaint. So three months of statements before each loan or top-up, and two months afterwards. For example, if you took out a loan in August 2020, send statements for May-September 2020.

  • Can borrowers and guarantors both submit complaints?

    Yes, they can both put in complaints simultaneously. But it's worth noting that the complaints will not be about the same thing. As outlined in our checklists, while the complaints will both be about the same loan agreement, the guarantor would complain about the guarantor aspect of the loan and the borrower would complaint about the borrowing aspect.

  • Will complaining affect my guarantor?

    Complaining won't affect your guarantor if you carry on making the payments. Your guarantor won't be told you have complained.

    If you stop paying the loan when you make a complaint, your lender may decide to get your guarantor to pay it – if you don't want this to happen, you must keep up with your payments.

    Think about whether your guarantor also has a good reason to complain – if they win a complaint, they will be removed as a guarantor, which would take a lot of pressure off you.

I'm a guarantor: The mis-selling checklist

Just as many borrowers' loans were mis-sold, many people became guarantors when they shouldn't have or couldn't afford the commitments. If this is you, you may be due cash back.

We have seen four main grounds for complaint for guarantors, and if you can cite at least one of these reasons, you will have a good chance of winning your complaint. But there may be other reasons as well. You know your own situation – if something didn't feel right to you, it's always best to mention it.

The four key reasons a guarantor can complain

It's all about whether you understood it, whether you could afford it and whether you went in to it willingly. Specifically...

  1. You couldn't afford the payments when you agreed to be a guarantor. Loan repayments need to be affordable for you – even if you're not the borrower. The regulator's definition of affordable is that you have to be able to repay it on time without it leaving you so short of money that you have to borrow more, get behind with bills or sell your house.

    The lender's required to check the repayments are affordable, not just for the borrower but for the guarantor as well. If you can't afford to make the repayments (and you've not had a significant change in circumstances since the loan was first taken out), then it's possible it may have been mis-sold to you as a guarantor.

  2. The lender failed to clearly communicate what being a guarantor meant or didn't tell you that the borrower was taking top-up loans. Lenders must ensure you properly understand what being a guarantor means. While many people understand the implications of borrowing money, the implications of being a "guarantor" are far less understood. For example, Sara Williams of debt advice website Debt Camel says that it's common for guarantors to mistakenly think they will only have to pay if the borrower died or goes bankrupt.

    In addition, the lender must let you know if the borrower takes extra loans on top of the original amount, and make sure you understand the implications. Just because you agreed to the first loan, this doesn't mean the lender can assume you will be the guarantor of a top-up. The lender should have checked you were happy with this and that you could afford it – your circumstances may have got worse since the affordability check on the original loan was made.

  3. You were pressured into becoming a guarantor. People can be put under pressure or bullied into agreeing to become a guarantor, according to Debt Camel's Sara Williams. For example, this could include being asked by a colleague or manager at work and thinking your job could be affected if you say "no", being asked by someone you rely on for help if you are elderly or disabled, or being asked by someone who helps you with your finances – such as your partner who pays half the bills or an ex-partner who pays maintenance.

  4. You had other financial links with the borrower when they applied for the loan and the lender didn't raise this or take it in to consideration. If you lived with the borrower or have other financial links with the person borrowing the money, the lender should have looked at how your financial situation would be impacted if the borrower couldn't pay the loan.

How much can I get back if my claim is successful?

How the firm resolves your complaint depends on what you've complained about. However, any or all of the following may happen if the lender agrees with your complaint...
 
  • You will be released from the responsibility as a guarantor. If you should never have been a guarantor, you will be released from that role. This will remove the problem for you, and the loan will turn into a normal loan for the borrower.

  • You will get any payments you've made on the borrower's behalf refunded in FULL. If you have made any payments as a guarantor, the lender would be required to refund all payments in full. This will include BOTH the capital and interest payments (since the guarantor hasn't benefited from the loan, unlike the borrower).

  • You get interest back on top of the total amount of your refund. Just like a borrower, on top of the refund you can also claim 8% interest per year on payments from the date they were paid to the date of settlement. This is basically interest on top of interest, plus any fees and charges that might have been charged with 8% on each payment from the date they were made to the date of settlement.

  • Your credit file will be adjusted. The lender would be asked to remove any adverse entries on your credit file – including county court judgments and any restrictions on your house.

Now you have an idea whether you might have been mis-sold, and know what could happen if your complaint's successful, see our tips on how to reclaim for free.

 It's important to know that you can complain whether or not you've actually had to pay any money on behalf of the borrower. 

Quick questions

  • What evidence do I need to make a reclaim?

    All you need is your basic identity details (name, address, date of birth), the loan reference number and a brief explanation of your situation.

    For example, if you had financial links to the borrower, you believe you did not understand the implications of being a guarantor or were yourself struggling financially, you just need to describe this in your own words. (Both our template letter and our free reclaim tool clearly walk you through where this information needs to go.)

    You do not need any specific evidence to make a successful reclaim, and anecdotal evidence suggests that failure to do proper checks is so common that both lenders and the ombudsman are upholding complaints without the need for supporting documentation.

    But anything you choose to add, such as bank statements, benefit claims and statements from other debts and loans, will help. There are clear prompts in the reclaim tool to show you where to upload these.

  • Can borrowers and guarantors both submit complaints?

    Yes, they can both put in complaints simultaneously. But it's worth noting that the complaints will not be about the same thing. As outlined in our checklists, while the complaints will both be about the same loan agreement, the guarantor would complain about the guarantor aspect of the loan and the borrower would complain about the borrowing aspect.

  • I am a guarantor, will it affect my credit record?

    Whether or not the account shows on the guarantor's report, and when, depends on the lender's policy.

    The loan may only show on the borrower's credit report initially with at least one of the three main credit reference agencies.

    However, if the guarantor is called upon to make the payments, this could lead to a record of these expected payments to be registered on their own report, which could then impact their credit score and ability to get credit in the future.

    In other cases, lenders will record the account as a 'joint account' from the start. This means the account will show on both credit reports. The primary responsibility to pay will remain on the account holder, and transfer to the guarantor if payments are missed.

Some inspiration... 'I received a payout of £14,000' 

Lenders might not always admit to partial or complete mis-selling. They may often use phrases such as "gesture of goodwill" or "ex gratia" when offering you redress, but be under no illusion, with nearly nine in 10 complaints (88%) being upheld by the ombudsman, chances are if you had to take it that far, it'd likely (though these things are never guaranteed) rule in your favour. 

MoneySaver Sam was inspired to reclaim from his guarantor lender after hearing Martin talk about reclaiming. He emailed us to say:

I had an initial Amigo loan for £2,500, which I topped up several times to around £10,000. I'd been borrowing more just to keep up with the repayments, so I followed the tips on your website and was offered just shy of £14,000. The reclaim has changed my family's life – I can now start planning to buy a house for my family and move away from renting. If it wasn't for your advice and the templates/tools on your website, I wouldn't have been able to do this.

  • What Amigo says

    An Amigo spokesperson said:

    "All borrowers and guarantors go through robust affordability checks before an Amigo loan is made. This includes recorded conversations, where individuals are asked a series of specific questions to make sure they understand the information they are being asked to provide, their role and responsibilities. We take affordability very seriously and will not lend to anyone who cannot afford it.

    "Any borrower needs to provide a full and accurate picture of their finances. The case study mentioned clearly misrepresented his true financial position to us at the time of application for his loan.

    "We look at each customer complaint on a case-by-case basis and, in this instance, we concluded that based on being provided with the full and complete information about the borrower's finances, some of the loan agreements were not affordable. It was for this reason that this particular complaint was upheld."

MoneySaver Emma was inspired to reclaim from her guarantor lender after hearing Martin talk about reclaiming. She emailed us to say:

After watching Martin talking on his show about high-interest loans, I decided to have a look at my guarantor loan. I firstly asked my lender to review my payments as they were becoming a bit of a struggle. I complained to my lender through the Resolver site and I received a £10,827 refund on the interest I had paid. Thank you so much!

Don't delay – if your firm goes bust, it could take longer to get a payout and you could get back less than you're owed

Guarantor lenders aren't covered by the Financial Services Compensation Scheme (FSCS), the consumers' safety net if a financial firm fails. So if one goes bust, the size of the payouts given relate to how much money the administrators can squeeze out of the business and how many creditors are lining up.

Even those people who get their claims in just before a company goes bust may not get any more than those who filed theirs afterwards – it all depends on the administrator and the circumstances.

So far, no guarantor lenders are in administration. But as we saw several big-name payday loan lenders go bust in the past 18 months, leaving many customers getting significantly reduced reclaims, it may be wise to get your complaint in early, as we don't know what could happen, especially with the current coronavirus crisis.

If you believe you were mis-sold a guarantor loan by a company that is still active, don't wait to lodge a complaint.

  • Can I still make a reclaim even if my lender has gone bust?

    It's still possible to make a mis-selling complaint after a guarantor loan firm has gone bust, however how much you'll get all depends on how much money is left over and how many creditors this has to be shared between. Unfortunately, customers are at the back of the queue of people owed, being counted as 'unsecured creditors'. This means they're unlikely to see all the money they're due and could be waiting months.

  • Can I stop my repayments if my lender goes bust?

    If your lender goes bust and you're paying back a loan, you're likely to have to continue paying until the administrator tells you otherwise.

    Keep to your regular payment schedule. If you miss any repayments, you could be hit by fees and additional charges.

    Missing repayments could also harm your credit rating, because other lenders look at how you've managed your existing credit when working out whether or not to lend you money.

    In some cases, what you're owed for being mis-sold could be wiped from the ongoing loan. You could be due the interest and charges, and interest on all of that too.

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How to reclaim for free

If you think you were mis-sold as a borrower or misinformed as a guarantor and you want to make a complaint, the process is quick, simple and (importantly) free. Just use our free online reclaim tool via complaints site Resolver or use our template letters.

If you complain to the lender via Resolver, it'll help escalate your case too. It will prompt you to contact the Financial Ombudsman Service (FOS) after eight weeks, so if your complaint's rejected, you don't hear back or you aren't happy with the final offer, the FOS will look at your case (though you must escalate it within six months of the rejection/final offer).

Important: Remember, you don't need supporting evidence to get a reclaim started. You simply need your basic identification details and a clear description (in your own words) of what happened. Supporting documents (such as bank statements) can help, but don't worry if you don't have these to hand. We talk about this a bit more here.

Ready to get started? 

You don't need to use a claims management firm

Claims management firms may advertise as 'no win, no fee', but if you do secure a payout, some charge a huge fee – between 24% and 36% including VAT. Yet it's simple to reclaim yourself for free.

For example, one claims management company specialising in guarantor loans charges 36%. This means that for a £4,000 cash reclaim, they would take a whopping £1,440 in fees.

Don't want to use Resolver? Use our free template letter to do it yourself

We know some people would prefer not to use the online tool, so if you prefer, you can submit your complaint directly to the payday lender, using our free template letter to help.

Some lenders, including the biggest lender in the guarantor market Amigo Loans, have started asking people who complain to answer questions about their loan application by text or email.

It's important to know that you don't need to reply, the lender can't reject your claim simply because you ignore these questions. If you do want to reply, keep it short, and if you are unsure of anything, you are free to say so.

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  • Template letters to send to guarantor lenders

    Speak to the guarantor lender or check its website for the address of the complaints department. Generally these things are best done in writing, but if that's too difficult, don't worry about calling. Just ask that it is noted down as a formal complaint, and also ask for written confirmation.

    Don't feel you have to be formal. Just explain the point clearly, concisely and honestly, as if you were explaining to a friend why you've been wronged. To help, we've put together template letters to start you off. There's one if you're a borrower and another if you're a guarantor. Just download it and fill in the blanks. (Use it to help start you off, but the more you write in your own words, the better.)

    Download the borrower template letter here.

    Download the guarantor template letter here.

    Important: Keep a copy of the template letter – it'll be helpful if you end up needing to go to the ombudsman.

    But there's something crucial you need to understand. At this stage, reclaiming's like a game of 'who blinks first?' Your payday lender may say "no". If so, don't worry. You can take your case to the FREE ombudsman (see below).

  • No response? Rejected? Escalate to the FREE ombudsman

    If you don't hear back from the lender after eight weeks, or if your complaint's rejected or you're not happy with the response, you should escalate your complaint to the free, independent Financial Ombudsman Service (FOS). This is the official, impartial body for settling disputes between individuals and financial companies.

    You need to fill in the FOS complaint form.

    As with the first letter to the guarantor lender, which you could always copy and paste, don't feel you have to be formal. Explain the point clearly, concisely and honestly, in your own words, just as if you were explaining the situation to a friend.

    It's simple to fill in, though take care. If you need help filling this in, you can call the FOS on 0300 123 9123 or 0800 023 4567, and it'll guide you through the claim.

    You can send it back by post or fill it in online. Attach any paperwork to back up your case.

    The ombudsman will send you a confirmation letter to say it'll look into your case and get back to you if it needs any more information.

    The ombudsman will decide whether the circumstances under which the guarantor loan was sold were unfair, then decide what redress is required. In most successful mis-selling cases, this means a refund.

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