Amigo Loans On Its Way To Bankruptcy?

Amigo Loans On Its Way To Bankruptcy?

Amigo Loans is the UK's biggest guarantor lender. With the lowest default rates in the market, just how is it on its way to bankruptcy?

Amigo Loans has grown from a small private lender to one that floated on the London Stock Exchange with a market cap of around £1.3 Billion in 2018. Unfortunately, since then the business has taken a nosedive. Its current valuation is around £300m and falling. Administration within the next 12 months is highly likely.

The main reason for the decline seems to be boardroom infighting. It certainly isn't the number of defaults on their loanbook. Amigo Loans have the lowest default rate of any lender in the UK. The way the loans are structured means that a guarantor will step in if the primary borrower fails to make repayments on time. From a lenders point of view, it's an excellent business model. For this low-risk lending, they charge up to 49% APR.

How have they messed this up then?

Good question, on paper they should be making well over £100m a year in profit. Well, it turns out that the boardroom isn't a very settled place. The founder and largest shareholder with 43% James Benamor is highly critical of Amigo's current board. He says that the current board is driving the company into the ground. James infers that Directors are misselling loans to customers in order to drive up their own bonuses.

His claims about mis-selling seem to add up. The Financial Ombudsman Service uphold 4 out of every 5 complaints from Amigo's customers. Each complaint costs Amigo around £650 in fees plus up to £2000 in compensation on some loans. It isn't hard to see why Amigo is running into trouble.

To be fair to James, he is desperately trying his best to oust the current board and address the misselling issue. His latest attempt to get himself elected back onto the board had failed. Why on earth shareholders prefer the current board to him is a mystery. One thing is for sure is that if the company sticks with its current board much longer, Amigo will be no more. We estimate that it will be placed in administration by mid-2021 if things continue as they are.

As it stands, Amigo loans have to request permission from the FCA to pay out bonuses to its own board members. These are extraordinary measures; it's just one step away from insolvency. These measures are used by the FCA in extreme circumstances to safeguard companies from their own boards.

What does it mean for borrowers if Amigo goes bankrupt?

Unfortunately, it does not mean that borrowers will have their debts written off. Borrowers and their guarantors will still have to make repayments back to the administrators.

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Comments (5)

This comment was minimized by the moderator on the site

I'd be more than happy if Amigo went under. The rates they charge for their loans is beyond extortionate. 49.9%, how do they get away with that. It's a surprise they haven't been banned for loan-sharking.

This comment was minimized by the moderator on the site

Amigo will file for bankruptcy in August 2021, that is when their money will run out. A lot of people who borrower from them are currently on furlough, when that ends, Amigo will see defaults sky rocket.

  Lenna Anon
This comment was minimized by the moderator on the site

I was a guarantor for a family member. Do not, under any circumstances become a guarantor for anyone. This kind of agreement has the ability to tear some of the closest families apart.

This comment was minimized by the moderator on the site

I can echo this, was a guarantor and the worst thing I ever did. My cousin missed a payment once and then Amigo contacted me. I've barely spoken to her since.

This comment was minimized by the moderator on the site

Why do you still have to pay them back if they go bankrupt? If they disappear, then surely there is nobody to make the loan repayments to?

Are you sure of the information?

The founder of Amigo Loans "James Benamor" won't be going hungry, I won't be worrying about his welfare if I were you.

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