Why are we here?
12 million people are currently unable to borrow from banks because of their credit score but things weren't always this way. For hundreds of years borrowing was based on your reputation. Bank managers were a part of the local community, personal relationships counted.
In 1970 the first credit score was invented, it was the beginning of the end for community banking. Over time, relationships became less important, computers took over and pretty soon a number on your file was all that mattered. Customers with high numbers were good and customers with low numbers were no longer welcome.
But computers are good right?
Computers are great at doing repetitive tasks, like calculating interest on your account or serving up this website 20,000 times a day, but they aren't great at making judgments on people's lives. Worse still, computers producing these credit scores aren't actually judging whether you can easily repay.
A credit score is actually a profit score
It makes sense - if you were a bank, wouldn't you want to focus on the most profitable customers? Credit scores are actually calculated on how much money the bank thinks it can make out of you.
So if you're more likely to be able to pay off a loan quickly (for example because you are starting your own small business) you get a lower score because the bank gets to make less money out of you.
Amigo trust friends, not computer scores
We’d love to say this was our idea, that we've invented something new here, but we didn't. Guarantor loans have been around since Roman times. In the UK, Guarantor Mortgages have been around for some time and most university students rely on a guarantor when they rent their first flat.
In the third world the Microfinance movement, started by Nobel Prize winner Mohammed Yunis, relies on loans being guaranteed by groups. Guarantor based finance is a back to basics approach which is helping people all over the world achieve financial inclusion.
This isn't just a business, it's a cause
What we are doing here is important because it makes borrowing possible for millions of ordinary people who are being excluded by banks. Without us our customers would only have extortionate payday loans or illegal money lenders to turn to.
Who are those people?
Amigo customers come in loads of different shapes and sizes. Young people, people who have been out of the UK for some time and micro business entrepreneurs are all very poorly rated by credit scores. What brings all of our customers together though is that they are trusted by their friends and family.
We believe everyone falls into one of these 4 boxes:
If you’re in box A:
you can borrow from a bank and you will repay. You don't need Amigo, you're likely to think we're expensive.
If you’re in box B:
you can borrow from a bank, but we don’t think you should be able to. Box B is the reason the credit crunch happened.
If you’re in box C:
the bank’s computer score has got you wrong. We estimate around 2m people in the UK fit in box C. All Amigo customers are in box C.
If you’re in box D:
you can't borrow from a bank or from us, in fact you shouldn't borrow from anyone right now. You might want to speak to Stepchange - your friends are telling you something, they know you best and borrowing is almost definitely not a good idea for you.
Who would be a guarantor?
I know what you're thinking; why not just borrow directly from your friend? Lots of people do. We're not trying to change that, but there’s a gap. As you’d expect, not everybody has a large amount of money they can lend. However, we’ve found that what is more important to guarantors is they’re enabling the borrower to build or rebuild their credit record, meaning they’ll be able to access more financial products in the future. Our own research tells us 67% of the UK would turn to family or friends if they were turned down for credit by the banks, and while many won’t have the money to lend, they still want to help. We’re offering a way to make it happen.
Why don’t guarantors get a bank loan in their own name for the borrower?
Surely a guarantor should be able to get a loan at a better rate? Some people do that too, but borrowing money yourself is very different to guaranteeing a loan. You have to manage the account yourself; make payments every month out of your own account; collect each payment from the borrower; the account is recorded on your credit file; applications, the loan balance and any late payments can affect your credit score. Most importantly, on an Amigo loan the borrower actually gets the chance to rebuild their credit rating. As payments are made on time, Amigo write back to all three UK credit reference agencies (Experian, Equifax and Call Credit) meaning that borrowers can eventually borrow on their own without help.
Amigo is expensive though right?
Actually no, not in context. Credit Unions are now charging only a few percent less than us (42.6%). It also depends on what you compare us to and how you use the money. Compare us to Wonga and borrowing £500 from us for a year costs the same as borrowing from them for 30 days!
Over 40% of our borrowers take advantage of our flexibility and choose to pay off their loan early, often meaning the actual amount of interest they pay is half the quoted APR.
We're working to bring our costs down and want to reduce our charges.
Representative 49.9% APR (variable).
Do guarantors know what they are getting themselves into?
Being guarantor for someone is a serious commitment. We go to great lengths to make sure no one ever goes in without fully understanding what is going on. First of all our contracts are really simple, we've cut them back to as few words as possible. Check one out here. Secondly we carry out a telephone interview with every guarantor where we run through their income and outgoings, make sure they are able to pay if the borrower doesn’t and lay out in plain English their obligations. To make sure the guarantor really is willing to pay we ask them to give us debit card details AND a direct debit to use if we need to. We send confirmation texts, letters and emails before the loan is paid out, and finally the loan is paid into the guarantor’s bank account not the borrowers so that they definitely know the loan has happened.
What about when things go wrong?
No one should be a guarantor unless they are happy to pay the loan if the borrower doesn't. Because people can judge their friends much better than a computer, and because borrowers don't generally want to let down friends who have done them a favour, late payments and defaults are rare. But occasionally they do happen - when a payment is missed we contact the borrower and the guarantor by phone, email and text message so we can sort it out as quickly as possible and understand what’s caused the missed payment… We don't charge for this.
If a borrower finds themselves unable to pay we'll talk to the borrower about why this is happening and give them some time to sort things out. We understand that sometimes things don't go to plan and occasionally a customer just needs a few days to resolve the matter. If after some time the borrower is still unable to pay we'll speak to the guarantor about making the payment for them.
In some situations we'll give the borrower more time before we ask the guarantor to make the payment. Where appropriate we'll also cap the interest and arrange a payment plan with either the borrower or both the borrower and the guarantor. We will always keep the guarantor informed so they know what's going on.
What about the guarantor’s own credit score?
We will look at the guarantor's credit file as part of our checks before paying out the loan to make sure that they are financially stable and haven't had trouble paying back their bills in the past. This is a special type of search called a 'Quotation Search', which will not affect their credit score held with the credit reference agencies. Anyone searching their credit file wouldn't be able to see they are a guarantor on an Amigo loan, or even that they're linked to the borrower.
The one time the guarantor could find their credit file and score affected is if both the borrower and the guarantor refuse to pay and we are forced to take court action. Where the court judges that the borrower or guarantor must pay and they still refuse, after 28 days the court will record the judgement on their file.