More and more people are struggling with debts for guarantor loans and rent to own products. IT'S TIME FOR A CAP ON THE COST OF CREDIT.  

There has been a shift in the high cost credit market as the number of people seeking help for problems with these sub-prime products has risen exponentially over the last two years.

In contrast, the number of people with payday loan debt problems has decreased.

Over the last 12 months one debt advice charity alone helped an astonishing 7,500 people with rent to own debt problems, 1,100 with guarantor debt problems and 460 with logbook loan problems.

Since the introduction of a price-cap on payday lending in January 2015, the number of people seeking debt advice for help with payday loan debts has fallen by more than a half (53%).

The cap means if you take out a payday loan you won’t pay back more than twice the amount you originally borrowed.  


But analysis shows customers of other types of high cost credit are still paying more than double the loan:

  • A £3,000 loan from a guarantor lender paid back over 5 years could cost a total of £7,114 - 137% more than the original loan.

  • A logbook loan of £3,000 paid back over 12 months could cost a total of £6,980 - 133% more than the original loan. Over 3 years, the longest term available, the total cost would be £14,880.

  • A £607 cooker from a rent to own provider to be paid back over a period of 3 years would cost a total of £1,216, just over 100% more than the original loan.  However the original prices of the items are much higher than in other stores.


We believe that the Financial Conduct Authority should consider extending the cap to other high cost credit products when it carries out its review of the price cap on payday loans this year.


guarantor loans:

When a person takes out a guarantor loan, a friend or family member agrees to act as a guarantor, which means they will pay off the loan if the borrower defaults. The number of people who sought debt advice help with guarantor loan debts has increased by up to 50% in the last two years. 

Research reveals that people are often put down as a guarantor without being given clear information about their responsibilities. The guarantor may therefore be unaware that they are liable for thousands of pounds of someone else’s debts if the borrower misses payments, and in extreme cases having to pay for this even though the borrower has died.

rent to own loans:

People using rent to own products will ‘buy’ a product from a hire purchase store and agree to pay it back over a period of time with added interest. If the buyer defaults on a payment the item can be taken away - regardless of how much they have already paid.  

Evidence shows that the number of people seeking help for rent to own debts has risen by around 30% in the last two years. In some cases people are paying for compulsory service charges of hundreds of pounds when it is not made clear by the firm what these are actually for.


Bryn Phillips, Lead Organiser for Neighbours said, 

“I was there in the House of Lords four years ago when the Archbishop declared war on Wonga, and the cap on pay day lenders was brought into force. It was a momentous day, which marked the culmination of a four year community organising campaign.

'But since then, problems with high cost credit have crept up in other parts of the market.

“People are now struggling with the misery of debt caused by rent to own companies like BrightHouse, logbook loans, and guarantor loans.

'It isn't just the rates of interest that cause difficulties. It's not just the unclear charges. Irresponsible business practices - such as signing people up as guarantors without explaining what it really involves, or charging a colossal price for rent to own goods - are causing misery for millions of poor, vulnerable people in neighbourhoods across Britain.

“What we already know is that the pay day loans cap has been absolutely brilliant in halving the number of debt problems caused by payday lenders. Research shows the cap on payday loans - and other measures introduced by the FCA - have led to a reduction in payday loan problems and a number of lenders leaving the market. 

'It is now time for the FCA to revisit its earlier achievement and extend the cap to cover other types of high cost credit.'