Amigo calls itself a mid-cost provider. What is the definition of mid-cost and what is the difference between mid-cost and high cost credit?
Amigo is a mid-cost credit provider. Mid-cost credit is defined by the FCA (the Financial Conduct Authority, who are our regulator) as “credit above prime borrowing rates but below the high-cost short-term credit (HCSTC) cap level” of 100% APR*.
High cost credit is defined as a credit agreement whereby the APR is equal to or exceeds 100%, and where the credit is due to be substantially repaid within a maximum of 12 months**.
With a flat APR of 49.9%, with no additional fees or costs, Amigo is well positioned within the mid-cost credit market.
Amigo’s rate also compares well to many mainstream credit cards, which often hide behind “headline rates”, which are only applicable to a proportion of customers, and even then, this headline APR can reach a significantly higher figure when factoring in late payment fees and administrative costs.
Amigo fills the gap between mainstream and high cost credit markets providing an alternative for those who are locked out of traditional sources of finance.
We believe our rate is fair and reasonable and reflective of the service we offer.
**FCA Handbook, High cost short term credit definition
Amigo already has 88% of the existing market share, leaving limited room for growth. What is your position on this?
Amigo was founded in 2005 and has grown to become the UK's largest provider of guarantor loans, with approximately 88% UK product share as of 31 March 2018.
This is product share, not market share, and the reason for this distinction is because there is significant opportunity for growth outside of this current borrower pool.
The addressable non-standard finance market in the UK is estimated to be c.20% of the current adult population; 5 million credit impaired adults, 7.5 million adults with low credit status or no credit history and c.2 million highly indebted individuals (totalling at around 10 – 12 million adults, accounting for overlap).
Eliminating the highly indebted segment of the market (who would be ineligible for Amigo’s product due to failing to meet affordability checks) and Amigo’s existing customer base, there are c.7.8 million – c.9.8 million potential additional customers in the UK non-standard finance market.
This is the growth potential that Amigo is targeting as the leading provider of guarantor loans in the UK.
We have confidence in our affordability processes which have been thoroughly reviewed during the Financial Conduct Authority authorisation process and are supplemented by regular internal reviews.
It’s not in Amigo’s interest to give out loans to individuals who are unable to repay them and our affordability processes go above and beyond standard industry practice by asking for a detailed line by line breakdown of expenses from both the borrower and the guarantor. Amigo charges no additional fees or costs, including to customers in arrears, and already caps the total interest a customer will pay.
Customers must be able to demonstrate they can meet all their commitments, rent, bills, food, clothes etc. and any other credit commitments, as well as their payments to Amigo, and still be left with an £100 buffer.
We then undertake extra levels of questioning where needed to help us make a more informed decision about affordability. We speak to all guarantors over the phone to ensure they are aware of their responsibilities.
We currently lend to approximately 15% of people who start the loan application with us and over 90% of loan repayments are from borrowers, as opposed to guarantors. This demonstrates the effectiveness of our affordability processes.
The Financial Ombudsman has upheld some complaints which found Amigo guilty of failing to properly assess the affordability of loans for guarantors and borrowers. What is your position on this?
We have confidence in our affordability processes which have been thoroughly reviewed during the Financial Conduct Authority authorisation process which is supplemented by regular internal reviews.
Amigo has around 182,000 live loans – that’s 182,000 borrowers and 182,000 guarantors. 0.02% of total customers interactions resulted in a complaint (Oct & Nov 2017).
Furthermore, only 80 complaints were referred to the FOS in the last six months of 2017. Of these 68% were found in Amigo’s favour. These figures compare very favourably with other alternative credit providers in the market.
As a company we take our responsibilities to customers very seriously and that’s reflected in our service being rated as 9.4/10 by over 15,000 customers according to Trustpilot.
Amigo has a high reliance on repeat customers, which some might feel suggests you are encouraging a “spiral of debt” for those who become dependent on high interest loans. What is your position on this?
We believe we have a high level of repeat customers because they have been happy with the service they receive and require further financing.
It is not in our interest to lend to people who are unable to repay their loans and all repeat customers (both borrowers and guarantors) undergo the same rigorous affordability checks that they went through on undertaking their original loan.
All our processes and procedures have been thoroughly reviewed during the Financial Conduct Authority authorisation process. Amigo charges no additional fees or costs, including to customers in arrears, and already caps the total interest a customer will pay.