DIKSIA.COM - Amigo Loans was a company that specialised in providing subprime loans with payments guaranteed by a borrower's friend or family member. The company claimed to offer a fair and flexible alternative to people who could not access credit from mainstream banks, but also charged high interest rates of 49.9% APR. Amigo Loans was founded in 2005 and grew rapidly in the UK market, reaching a peak valuation of £1.3bn in 2018.
However, the company faced a series of challenges that led to its demise, including regulatory scrutiny, customer complaints, legal disputes, and financial difficulties. In March 2023, Amigo Loans announced that it would stop lending and enter into an orderly wind-down, leaving thousands of customers and shareholders in limbo. This article will examine the rise and fall of Amigo Loans, and the implications for the subprime lending sector and the wider society.
The Business Model of Amigo Loans
Amigo Loans operated as a guarantor lender, which means that it required borrowers to have a guarantor who agreed to repay the loan if the borrower defaulted. The guarantor was usually a friend or a family member of the borrower, who had a better credit score and income than the borrower. The guarantor had to pass a credit check and an affordability assessment by Amigo Loans, and sign a legally binding contract to guarantee the loan.
Amigo Loans offered loans of up to £10,000, with a repayment term of up to five years, and an interest rate of 49.9% APR. The company claimed that its interest rate was lower than other high-cost credit products, such as payday loans or rent-to-own schemes, and that it did not charge any fees or penalties for late or missed payments. Amigo Loans also claimed that it helped borrowers improve their credit ratings, as it reported their repayments to credit reference agencies.
Amigo Loans targeted customers who had poor or limited credit histories, who were often excluded from mainstream financial services. The company marketed itself as a friendly and responsible lender, who treated customers fairly and with respect. The company used the slogan “Loans with a human touch”, and emphasised the personal relationship between the borrower and the guarantor, as well as the customer service provided by the company. Amigo Loans also relied on word-of-mouth referrals and online reviews to attract new customers, and offered incentives such as cashback and vouchers to existing customers who introduced new borrowers or guarantors.