Oh how wrong can you be.
Reported in the Guardian, Stella Creasy, the Labour MP for Walthamstow was credited with saying “Guarantor loans are a trap”. First let us say that we support Stella in championing the consumer against usury, and unscrupulous lenders. As a segment most if not all payday loans were probably usury and some lenders were worse than others, but to put Guarantor loans in the same category is not just unfair to Guarantor loans in general but Stella may be doing more harm than good. If consumers are put off looking at structured, affordable, repayment loans as a substitute for very high interest unsecured borrowing such as payday loans, asset loans (eg Brighthouse) then desperate borrowers will still seek Payday loans or worse.
Why they might be the cheapest and fairest of the “Alternative Credit” products
When looking for a loan there can really be just one question; can I borrow from a mainstream lender (bank, building society or Hire Purchase specialist) at low, headline, rates of interest? If the answer is yes, then you don’t need alternative loan providers at all; they will be far more expensive and you should approach your bank.
If, however, you can’t borrow from this source then consider carefully where you might borrow those needed funds, your ability to make the repayments (affordability) and how spreading the loan over a period of smaller fixed payments might help your personal circumstances.
And then look at the real costs of borrowing.
On 1 April 2014 the FCA takes over from the Office of Fair Trading (OFT) to become the regulator for the consumer credit industry – this includes hire purchase, credit card issuers, payday loan companies, pawnbrokers, debt management and collection firms and providers of debt advice.
The FCA already have a Handbook of rules and guidance that other financial services firms have to follow and comply with, and they are now preparing to bring consumer credit firms into that same regulatory system. The FCA are currently consulting on exactly how to do this and how it will affect firms and consumers.