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Reclaim mis-sold guarantor loans for free

Get £1,000s back for being mis-sold or treated unfairly

Rosie Hamilton
Rosie Hamilton
Updated 27 August 2024

In the past few years guarantor loans have been widely mis-sold, with affordability and lack of proper credit checks being particular issues. In this guide we'll run you through what counts as mis-selling and how to make a reclaim.

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What is a guarantor loan?

If you can't get a loan because of past credit problems or you've little or no credit history, one option is to ask a family member or friend to be your 'guarantor' so you can take out a so-called guarantor loan. This means they'll 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 expensive – you can end up paying back £175 for every £100 you borrow.

Legally, lenders have to check that you can afford a loan before lending you the money, but it's been found that many high-interest loans – including guarantor loans – were sold without rigorous-enough checks.

If you've struggled to pay back a high-interest loan, or couldn't comfortably afford it, you might have been mis-sold – and could be due money back...

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 two-thirds of complaints being upheld by the ombudsman, chances are if you had to take it that far, it'd likely rule in your favour (though these things are never guaranteed). 

MoneySaver Sam was inspired 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.

MoneySaver Emma was also inspired to reclaim from her guarantor lender. 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!

You may be due cash if you were mis-sold OR if you were treated unfairly

Given the huge problems in this industry, it's perhaps unsurprising that you could be due money back for both mis-selling and being treated poorly by a lender. 

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)

Lenders have to check that you can afford the loan before lending you the money. So 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 – 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. While it's always best to raise a case within six years of taking out the loan, if it's longer all is not lost.  Even for claims as old as 2007, the ombudsman will consider it if you only found out in the last three years that their lender should have checked affordability.

  • 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 in the application too quickly or were just desperate and your lender didn't verify your numbers. While lenders are not required to review bank statements before lending, the ombudsman says it would typically expect lenders to check a customer's income independently, and look at any "observable trends" such as frequent refinancing, increasing levels of debt and how much the debt costs each month. 

    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 whether 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, 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.

Quick questions

  • What evidence do I need to make a claim?

    Whether it's an affordability reclaim or an unfair 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 several months' worth of bank statements to your complaint, preferably some from before and some from after taking out the loan. For example, if you took out a loan in August 2022, send statements for May to September 2022.

  • 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 both complaints will 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.

  • 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, meaning they'll no longer be contacted if you're unable, or late, to make a payment.

Guarantors can claim for mis-sold loans too

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...

  • 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.

  • 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.

  • 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.

  • 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.

Important. 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 both complaints will 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'm a guarantor, will it affect my credit record?

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

    The loan may only show on the borrower's credit report initially. 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 affect their credit score and ability to get credit in future.

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

How much will I get if my claim is successful?

The key point to remember when you make your claim, is that:

It's all about being put back to where you would have been if you'd been treated fairly or not mis-sold in the first place. 

In most cases, this means you'll get the interest and any fees and charges back.

Important: The amount you can get is likely to be limited if your lender has gone bust. If the lender you want to complain about is now out of business head to Can I still reclaim if my lender has gone bust? 

How much will I get back if I'm the BORROWER and my complaint is successful?

As a general rule, here's what you can expect (the same principles apply whether you were mis-sold or treated unfairly):

  • You will likely be refunded interest PLUS any fees and charges from the time you were mis-sold or deemed to have been treated unfairly. The reason you'll get the interest plus any fees and charges back is because this is essentially the 'cost' of the loan – a cost you never would have paid without being mis-sold the loan in the first place.

    If you make a successful mis-selling reclaim, you will likely be refunded MOST, if not all, the interest, fees and charges (if you were charged those) since the mis-selling happened when you first took out the loan. Since the interest makes up a considerable portion of the total amount you repay, these reclaims can be sizeable.

    If you make a successful reclaim based on being treated unfairly, the amount of interest, fees and charges you get back will be from the time you were unfairly treated. Some customers will find they were treated unfairly from the outset, and will therefore get most of their interest, fees and charges back, but others might get proportionally less.

  • You can claim interest on the total amount of your refund. On top of the refund, you can claim 8% interest a 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.

It's important to understand that 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.

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.

How much can I get back if I'm the GUARANTOR and 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 a 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.

  • 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.

    If you decide to make a complaint after your lender has gone bust, it's important that you keep making your loan repayments as normal. If you stop making payments, your credit score may be harmed and your guarantor could be asked to make repayments.

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 free. 

If you complain to the lender via our free online tool 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).

While it’s always best to raise a case within SIX YEARS of taking out the loan, if it's longer all is not lost. Even for claims as old as 2007, the ombudsman will consider cases for customers who only found out in the last three years that their lender should have checked affordability. 

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. Read more about the info you'll need.

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 of between 24% and 36%. For example, one claims management company specialising in guarantor loans charges 36%. This means that for a £4,000 cash reclaim, it would take a whopping £1,440 in fees. Yet it's simple to reclaim yourself for free.

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

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

  • 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 notes it 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 (Word doc, about 90 kB).

    Download the guarantor template letter (Word doc, about 90 kB).

    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 guarantor 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 into the form, 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 it 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.

    It 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.

    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.

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