A guarantor loan is very similar to many other types of loans other than it has a guarantor – often a family member or close friend – who contractually agrees to make the loan repayments if the borrower is unable to.
The rules lenders have to follow are still the same as they are for loans without a guarantor. That means the lender is required to carry out proportionate checks to ensure that the borrower can sustainably make the repayments from their income or savings. And lenders did not always carry out sufficiently thorough checks – to get a true picture of the borrower’s circumstances.
Borrowers who already have serious underlying financial problems should not be given a guarantor loan, even if the presence of a guarantor means that the application is successful. Financial problems we’ve seen include debts being already out of control before the guarantor loan is provided, and some customers using online betting sites to gamble, as an ill-advised way of maintaining finances. One Ombudsman ruling said the following:
“The information provided also shows that Miss H was gambling unsustainable amounts of money. In these circumstances, I don’t think that Amigo would have lent if it knew, as I think it ought to have, that Miss H’s ability to repay this loan would, to in all intent and purpose, be based on her success as a gambler.”
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