Guarantor loans are damaging families and friendships
Guarantor loans are saddling friends and relatives with "mountains of debt" and are potentially just as damaging as payday loans, a charity has warned.
Citizens Advice said those put forward as a guarantor on behalf of a borrower were unknowingly signing up to guarantee expensive loan repayments, and being pursued in the case of default or arrears.
The charity's report, A Problem Shared, said 43% of guarantors who sought help from Citizens Advice were unsure of the extent of their responsibilities. It also highlighted that guarantors could still be liable to pay off a debt even if the borrower had died and warned that guarantors were not regarded as "customers" by regulators, therefore missing out on basic protections most debtors would receive.
Citizens Advice said the loans, which have average interest rates of 46.3%, were often marketed at borrowers with poor credit histories.
And while it welcomed figures suggesting the number of people seeking payday loans had reduced since the Financial Conduct Authority introduced new regulations last year, it warned that products like guarantor loans could be used more as an alternative.
The charity raised concerns that, like payday loans, preventative action would not be taken on guarantor loans until it was too late for many borrowers.
The guarantor loan market is now worth £154m.