A charity has warned as UK regulators put pressure on payday lenders that industry issues are simply shifting to other parts of the credit product market.
Citizens Advice has declared “guarantor loans”, which allow borrowers to use someone else’s name, usually a friend or family member, as collateral for a loan. This person is then sued by the lender in the event of default or arrears.
Although the market for secured loans is much smaller than that for payday loans, Citizens Advice says it has evidence that it is growing.
“In 2013, the latest year for which good data is available, 53,000 people took out a secured loan and the deal was worth £ 154 million. It’s a much smaller market than payday loans, but we know the market is growing.
“Companys House data shows that the largest lenders in the market have grown since 2012, while the largest guarantor lender has seen its turnover increase by 30% and profits by 40% from 2013 to 2014.”
According to Citizens Advice, the guarantor loan is very similar to the payday loan, but there are some differences such as the loan amount, interest rates and duration.
“Our market analysis suggests that secured loans are similar to payday loans in that they are delivered quickly, usually within 24 hours, and are marketed to borrowers with poor credit histories.”
“However, they differ in three respects. First, they are larger, typically ranging from £ 1,000 to £ 7,500 (while the average payday loan is £ 260). Second, they attract higher interest rates. low, although still high by broader industry standards, ranging from 39.9 to 49.9 percent and averaging 46.3 percent. Third, they last longer, generally lasting 12 to 60 months.