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Reclaim guarantor loans for free

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

payday loan refunds
Amalia Illgner
Amalia Illgner | Edited by Johanna Noble
Updated 26 February 2020

Do you have a guarantor loan or have you had one in the past that you're struggling to repay because the lender didn't check your finances properly, or kept trying to get you to 'top up' your loan? Or were you asked to be a guarantor without getting all the facts? If so, you may be able to reclaim £100s or even £1,000s.

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

In this guide 

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.

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

A very expensive way to borrow

This is because these loans are typically for sums between £1,000 and £7,500, and sometimes as much as £12,000. Mostly they are repaid between one and five years (while payday loans have to be repaid within a month or so), meaning interest payments can be enormous (of course, if you did borrow the same amount as you would on a payday loan and over the same term, a guarantor loan would be much cheaper).

For example Amigo Loans, the biggest lender in the guarantor market, charges 49.9% APR. If you borrowed £5,000 over three years, you'd need to pay back £8,782.20. This means that for every £100 borrowed, you need to 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.

 

I've got a loan: How do I check if I was mis-sold? 

Before lending to you, guarantor loan firms should properly check your finances to make sure you can afford it and also give you all the key information.

Rules imposed by the Financial Conduct Authority (FCA) say that a firm must undertake a reasonable assessment of your creditworthiness before lending to you. Crucially, your lender has to look at your income, any savings and any other debts to make sure you can afford the loan. They also need to consider whether the loan repayments could stop you from meeting legally binding bills (such as child maintenance payments) or harm your finances. They also need to consider any additional or "top up" loans you have.

If your lender hasn't done this, you could have grounds for a complaint. As payouts can be worth £1,000s, it's definitely worth checking to see if you were mis-sold.

Quite simply, the main reason you may have been mis-sold a guarantor loan is because you should never have been lent the money in the first place. 

For example, if your monthly take-home salary is £1,000 and you're given a guarantor loan for £5,000, it should be clear to the lender that you wouldn't easily be able to pay back the loan – in fact, you would probably get into a situation where you needed to borrow more money to try to pay it back.

Even if you never missed a payment, it doesn't prove the loan was affordable. You may have been repaying with difficulty, taking out other loans, because you didn't want your guarantor to be affected.

Hundreds of unhappy customers are reclaiming £1,000s

The Financial Ombudsman Service (FOS) reported 616 new complaints between April and October 2019 – that's more than 100 new complaints each month – and found in favour of the customer in 90% of cases. This is 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".

A massive nine out of 10 complaints brought to the FOS by unhappy customers against guarantor lenders are successful – the highest rate out of all the categories, even higher than for PPI.  

The mis-selling checklist

It doesn't matter whether you have an ongoing loan or you've already paid it off, you can still reclaim – as long as you raise the case within six years of taking out the loan (if it's longer than six years, contact the FOS, as in some circumstances you may still be able to claim).

Think you might have a case to reclaim? Here are the six main mis-selling categories – generally if you fit one or more of these, you're likely to have a case.

It's important to note that these are simply the main mis-selling categories that the FOS has reported. Even if your situation doesn't fit one of these reasons, but you still feel like you were mis-sold, you could make a successful reclaim.

  • Mis-selling checklist

    1. You shouldn't have been given the loan because you couldn't afford it and the lender should have known this at the time.

    2. Your financial circumstances changed and you can no longer afford to make the repayments to your loan but the lender isn't treating you fairly.

    3. You didn't apply for the loan.

    4. Your lender won't let you include the loan in an individual voluntary agreement (IVA) or bankruptcy.

    5. You're having problems with your credit file because of the loan.

    6. Your guarantor has been contacted too quickly.

I'm a guarantor: How do I check if I was 'mis-sold'? 

Just as many borrowers of guarantor loans were mis-sold, many people became guarantors when they shouldn't have. If this is you, you can complain.

There are five 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. 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.

 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. 

I think I was mis-sold – how much can I get?

Whether you're a borrower or a guarantor, it's all about being put back to where you could have been if you'd been treated fairly and responsibly in the first place. We've seen reclaims ranging from £100s to £1,000s so far.

In most cases, you won't be refunded for the loan itself, though in some extreme circumstances, the FOS told us you could get the remainder of the loan written off. But you should get all of the interest, fees and charges back, which will usually dwarf the original loan.

As you should first try to get your money back from the guarantor loan lender via our free tool below, make sure you know what you're due, so you're not short-changed. If your claim is rejected, or you're not satisfied with the final offer from the lender, it's simple to escalate it to the ombudsman – see below.

  • Can I claim interest on the interest, fees and charges?

    Yes, you can claim 8%. It's important to note that this is not for the value of the loan itself, but only for the interest, fees and charges each year, dating back to when you first started paying them.

    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.

  • What if I haven't finished paying off my loan?

    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.

  • What about my credit record?

    As well as a refund, you can request that any poor payment records on loans deemed to be 'unaffordable' are removed from your credit report. It's not done automatically, but if you use our reclaim tool, Resolver will prompt you to request that bad marks are removed.

    As the lender itself has to remove the information on your credit report(s) (which means you may not be able to do this if your lender has gone bust), it's a good idea to check each lender actually does this by checking your credit report via MSE's free Credit Club. Bear in mind that it can take a month for your credit report to be updated.

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

    The loan will likely just show on the borrower's credit report initially, with at least one of the three main credit reference agencies. Whether or not the account shows on the guarantor's report, and when, depends on the lender.

    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.

    Sometimes 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.

  • 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.

Some inspiration... 'I received a payout of £10,827' 

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 Amigo 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 less

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 have gone into administration, but Amigo Loans, the largest lender in the sector, has recently been in the news for its plummeting share price and that its founder is planning to sell his stake and "jump ship".

We don't have any extra information beyond this, but with several big-name lenders from the payday loan sector going bust in the past 18 months (leaving many customers getting significantly reduced reclaims), getting your complaint in early could be a wise move.

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.

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).

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.

  • Template letter to guarantor loan lender

    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).

    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.

  • 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 payday 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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