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19.06.2019

Easy Money, Tough Debt – best solutions

Panorama, the BBC’s hard hitting current affairs programmes, has lifted the lid on the issue of problem debt in Britain and revealed where it is people are turning to when they face hard times.

The expose, “Easy Money, Tough Debt” (still available here on the BBC IPlayer), casts a light on the pay day lending and guarantor loan industry, which is now owed over £1 billion by normal men and woman across Britain.

The programme tells the tale of ordinary people and families, struggling with low incomes and everyday crises that are being forced into the clutches of high risk lenders. They then are charged high rates of interest and often have to offer up family and friends as guarantors, before they are able to borrow.

When things then go wrong, the problems arise and don’t just affect the person that borrowed, but also the friends and family members who gave the guarantees.

Case Studies – Carl and Emma

One case study in the programme focuses on the story of Carl, who runs his own computer repair business. He agreed to act as a guarantor to help out his ex-wife, who wanted to borrow £5,000.

The full amount his ex-wife ended up owing was £11,800.

When she began struggling with repayments, the loan company began calling Carl demanding the payments from him. Worried about his credit rating, Carl had no choice but to make the payments for his ex-wife when she couldn’t.

Another case study focused on Emma, who already had taken out 4 loans with the same guarantor loan company.  They then offered her another loan to pay off her existing loan. She borrowed another £10,000, but after she used £5,000 to repay her existing loan, was only left with £5,000.  She then had to repay £23,000 over the next 5 years. Shockingly during the programme, she received another email from the Firm offering her another roll-over loan, despite the fact they already knew she was in trouble.

When Emma began struggling she contacted the loan company to ask for breathing space. The firm immediately contacted her guarantor, a close family friend, seeking payment from him. Emma has no choice, but to make the payments. She told the story of how she then began falling back on other bills, such as her mortgage, council tax and gas.

Why are Guarantor Loans such a Problem?

Both Carl and Emma’s stories illustrate why guarantor loans are such a problem, despite the fact they are one of the fastest growing methods of borrowing for people with poor credit histories.

The other problem is unlike with normal loans, the person that is having the financial difficulty and who borrowed the money cannot just go bankrupt or enter a repayment plan with the guarantor loan company.  If they do the Company just goes after the guarantor.

The firms contact them immediately and threaten to take action against them unless they make the payment.

Like the borrower, they can also be served default notices and can even be taken to court.  This means someone who has never had problems with credit can have their credit rating damaged.

This can then affect their ability to borrow in future and even get a mortgage.

Should you ever consider taking out a Guarantor Loan?

The simple answer is no. Not unless the person that is going to act as guarantor is prepared to repay the loan if you are not able to.

Other than the problems outlined above with guarantor loans, the other problem is lenders only give you them because they believe you are a high risk and possibly won’t pay. They will, to reflect that risk, also apply high interest rates.

This and the fact mainstream banks won’t lend you money is a good indication that you shouldn’t take the loan.

Instead, you should seek debt advice and get a full financial health check carried out.

Stephanie Chapman, Chief Operating Officer for Creditfix, speaking about the Panorama programme, said:

“What was shown on the programme is something we see daily. It’s normal people who face difficult circumstances.  They want to support a friend or family member, or have received an unexpected vet bill. They don’t have the financial resilience to go and make a withdrawal from savings, so they have to borrow and that’s when they get caught up in the downward spiral of high interest rates and roll-over loans.

“Once you are on that rollercoaster, it’s hard to get off, and unfortunately bad decisions can lead to worse ones, as you are under pressure”.

“That is why we always say, if you are thinking about a pay day loan or a guarantor loan, you should be thinking about getting advice. Early intervention can help avoid months or years of misery and that misery being passed to other family members and friends.”

If the issues shown on Panorama affected you because you are in debt, or you are thinking about taking out a pay day loan or guarantor loan, call a Creditfix adviser on 0808 2234 102 for free confidential advice.

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