If you find yourself burdened with a credit score that perhaps isn’t quite at the standard you’d like it to be, you’ve likely found yourself being faced with rejections when it comes to credit agreements with lenders for things such as car finance. It’s a common issue for those with a poor credit history - the lower credit score means you appear as a higher risk to lenders, which can mean that they either increase the premiums on your monthly repayments to lessen their risk, or reject you entirely.
Whilst bad credit can make it hard to find car finance, it does not mean that it’s impossible - there are many finance providers who tailor in bad credit car finance who will be able to assist you, tailoring their plans to meet your needs and financial situation. One of the most popular options for those who suffer with bad credit is guarantor car finance loans, which use a friend or family member as collateral against your loan - this means that they will be responsible for your payments should you fail to meet your obligations. You can find out more on our bad credit guarantor car finance packages below, or get in touch with us by clicking here!
What are guarantor loans?
First of all, let's take a look at what guarantor loans are and who they would likely be useful for. Guarantor loans are usually reserved for those who are unlikely to be granted credit by applying on their own, meaning they have to explore other avenues when it comes to setting up a payment plan for their car. Guarantors are exactly what you’d expect; they act as a guarantee for your loan payments, meaning that the lender has more security on the money that they are allowing you to borrow, as they have an agreed back up plan to collect their money should the applicant fail to repay. By signing the agreement, your guarantor agrees that any failed payments will become their responsibility to pay.
Of course, this works incredibly well for drivers who either have poor credit or no existing credit history - this is common for young drivers who have not yet utilised any credit from which a credit score could be formulated. By using a guarantor, the applicant is able to gain access to a credit arrangement for a reliable car without being rejected due to their own credit history, which is a huge bonus for the driver.
Can you get car finance with a guarantor loan?
Yes - Guarantor loans are a brilliant way to access car finance if you struggle with poor credit scores due to a rocky credit history! Of course, guarantor loans do come with many points to consider, particularly for the person who is to act as the guarantor in the agreement. In general, a guarantor loan will be used by someone who has previously been rejected for the desired credit arrangement and therefore needs the agreement to be based on the credit score of another trusted individual.
In most cases, we see guarantor having a close relationship to the applicant, often family members or close friends, as the guarantor will need to have a great deal of trust in them - if the applicant does not stick to their car finance repayments, it could lead to the guarantor losing out on their own money. Guarantors will need to be reliable lenders with a great history of making payments on time and in full, as they will be the one that undergoes a credit search during the application process. Once they’ve passed that check, you’ll be able to proceed with the application and start picking out the car that you want to start making payments on!
Who can be a guarantor?
As you would expect, there are certain rules surrounding who can be your guarantor - this is to ensure that they are a reliable lender in their own right and that your inability to make a repayment would not hinder their ability to make that payment on your behalf. For this reason, your guarantor cannot be a spouse or connected to you in any other way financially; your guarantor must be a completely different entity to yourself in terms of financials, meaning that they are able to make payments on any missed repayments without your financial situation having any impact.
To be a guarantor, you must meet the following criteria:
- You must have a good credit rating - the required credit score will differ based on your lender and the amount of credit that is being borrowed, so be sure to check with your finance provider first.
- A history of making payment on time and in full. If possible, it would be good to be able to evidence substantial repayments such as a mortgage or previous car finance deals.
- You must be familiar with the applicant, as you’ll be putting a great deal of faith and trust in them.
- You must be over the age of 18, however some lenders will require your guarantor to be at least 21 - again, you will need to check this with your finance provider before you enter an agreement with them.
- In certain cases, you may also need to be a homeowner in order to qualify as a guarantor loan.
On the other hand, here are the things that may stop someone from being able to be your guarantor for a car finance loan:
- Non-UK residents
- Your spouse or partner (if they are not 100% independent from you financially)
- People who do not have a UK bank account
- People with a poor credit rating
- People under the age of 18 (this can be 21 in some cases)
- People with an after-tax income lower than £1000pcm
As you can see, the above criteria is designed to protect all parties involved, creating a credit agreement that’s safe, secured, and manageable for both the lender and the applicant. By taking these steps, the risk associated with the loan decreases, therefore creating a healthier relationship between all the involved parties.
If you want to start the application process, simply click here to apply now!
Things to consider
If you’ve been asked to be the guarantor on a car finance agreement, there are lots of things you’ll want to consider - entering into one of these agreements is a big decision and not one that should be taken lightly. Whilst it may seem that you are simply helping somebody to be able to get a car of their own, there are serious financial risks that you, as a potential guarantor, need to be aware of before you sign any contracts. The risks of being a guarantor are very clear, but here’s a recap of the dangers you could face when entering one of these agreements:
- You may be forced to make the repayments yourself should the original applicant fail to make them.
- If you fail to make the payment after the original borrower has also failed, this could have major implications on your credit score, which can impact your ability to gain approval for credit in the future.
- The risk is high - you’re choosing to become financially associated with somebody with bad credit, which can have a negative impact on your credit file.
- The debt is your responsibility no matter what happens in your relationship with the borrower - if your relationship becomes sour or distant, you will still have a responsibility to make repayments on the debt until it is closed.
How does this type of car finance work?
Once you’ve found someone who is willing to act as your guarantor, you’ll want to get them registered with ChooseMyCar - by doing this, we’ll be able to get the ball rolling with the application process by conducting our affordability checks, which assess just what you will be able to afford to pay each month. After these affordability checks and credit checks have been carried out, the loan agreement can be finalised and you can browse our range of vehicles to find the right set of wheels for you! Once the loan is agreed, the applicant and the guarantor will both sign the loan agreement - this is to ensure that there is a backup payment plan should the borrower fail to make repayments. If all this is successful, the loan will be granted, which means the guarantor can give the loaned amount to the loanee - in a guarantor loan, the money is passed to the guarantor before it is given to the lender, as this allows the guarantor to have more authority over the proceedings.
The loanee will then start to make repayments based on the terms agreed with ChooseMyCar - this will usually be a monthly payment that consists of both the price of the car and the interest (which will usually appear as Annual Percentage Rate or APR) that is to be paid on top of that.
Why would you choose to use this method of payment?
The forms of finance that you choose to utilise will usually be based on your circumstances, with every person having a different form of finance that is best suited to their needs and requirements. This means that it’s always best to consider how each different type of car finance deal could benefit you in your own personal situation. In the case of guarantor loans, the ideal applicant will be somebody who is able to maintain payments on the credit borrowed, despite their credit history or current credit score maybe not indicating this at first glance. There are many reasons for this, but a few main causes are seen repeatedly, which you can learn more about below.
This is a scenario that we’ve seen all too often - a young driver has recently passed their test, but they’re unable to gain approval for a credit agreement due to the lack of evidence present in their credit history. It’s completely natural for young drivers to have minimal information available on their file and it’s actually very unlikely that they’ve actually been able to start to grow and improve their credit at such a young age. In most cases, you must be at least 18 to gain access to credit, so people below this age will not have had a chance to start working on their score - despite never having any credit or finance related issues, this will likely lead to rejection in most credit applications.
Many people do assume that no credit history will be a good credit history, however this is not the case - you’ll need to make a conscious effort to grow and maintain your credit score if you want to be in a strong position. Of course, if you want to get on the road as soon as possible, this probably isn’t always possible. If this sounds like you and you’re ready and raring to get on the road, a guarantor loan is probably the best of your very limited options - it’ll give you the chance to get a better car at a more affordable price, without having to rely on your virtual non-existent credit history to get you through. Instead, you’ll be able to lean on a friend or relative to help you to secure the credit agreement. By doing this, you’ll then be able to start driving a great vehicle whilst also starting to grow your credit score by making regular repayments on the credit that you have borrowed. By making your payments on time and in full, you’ll start to show lenders that you are a reliable, trustworthy borrower, which can put you in a better position for future credit agreements and applications.
Previous Bad Credit History
On the other hand, you may look for a guarantor car finance loan if you already have bad credit. If you’ve been given credit in the past and had trouble maintaining payments on a regular basis, you’ll have evidence of this on your credit file - even if it happened some time ago, it’s likely that the evidence of your trouble may still be present. If you find yourself in this situation, it’s likely that you’ll find guarantor finance to be the most feasible way to gain access to finance, particularly if you’re looking to avoid eye-watering interest rates caused by your poor credit score.
For those with bad credit, new credit agreements can be incredibly difficult to gain approval for, especially if your bad credit score relates to a history of failed payments, unpaid debts, or defaults as this shows a previous pattern of irresponsible lending and unreliable repayments. Thankfully, a guarantor car finance loan provides a different option of getting the credit required to buy yourself a new car that’ll get you zipping around the road safely and securely. As we’ve mentioned before, guarantor loans are a great choice for those who have bad credit as they remove the need for your credit to be put under the microscop - instead, a friend or relative will be the one to undergo the credit check, and you will be the one to pay back the loan. If you’re able to keep up with your repayments and ensure that everything is paid on time and in full, you’ll find that a guarantor car loan was not only a great way to get a car, but also a fantastic way to build up your own credit score!
What information will need to be provided?
As there are two people involved in the application process, it’s likely that two sets of details will need to be taken down and processed as part of your finance agreement - this will be the applicant and their guarantor. If you’re the applicant, don’t worry, you won’t be the one being granted the credit, nor will you be the one that is subject to a credit check - this will be your guarantor. The applicant’s only real job as part of this application is ensuring that their monthly payments are paid on time to avoid any unnecessary debt being accrued or financial burden being placed on the guarantor. The information provided by each party is likely to be very similar - you can find a breakdown of the information needed below:
- First and foremost, you’ll need to present some proof of identity - this should be very simple in this case, as you’ll likely have your driving licence on hand already if you’re applying for a car. In some cases you may be able to apply using a passport as proof of identity, but to be safe you should always try to use your driving licence when applying for car finance.
- Next, you’ll need to be able to show proof of income, which is required to evidence that you are capable of making the repayments on the vehicle that you are applying for. In most cases, you will find that 3 month’s worth of payslips will be required, as this enables the lender to see your consistent earnings over time. For those who are self employed, bank statements are a sufficient proof of income, so long as they clearly show a regular stream of income. If you aren’t able to supply a payslip, the lender may need to contact your employer to confirm that you do in fact work where you have stated, you don’t need to worry about this - this is just a confirmation call and no details regarding the application can be discussed. Applicants who receive state benefits may also still be able to apply, provided that at least half of your income comes from your employment.
- Address history is another important point during the car finance application process. Having the correct address of an applicant can enhance traceability for the lender, so when you’re applying for car finance you can expect to have to disclose your address to the credit broker. If you have just moved to the UK, it’s likely that your living status is still very flexible, so in those circumstances finance providers may carry out overseas checks to verify the address of your previous residence.
What else should you consider before entering a credit agreement?
By now, we’re sure you’ve got a firm understanding of what a guarantor loan is and how they may be able to help you get a car using finance despite your credit score needing a little bit of work. There are, however, a few more things that you’ll probably need to consider before you enter a credit agreement to ensure that the finances are all in order and the monthly repayments are an achievable sum. By doing your research and taking everything into account before you decide to apply, you’ll set yourself up for a more successful lending experience where you will avoid further debt, begin to build up your own credit score, and open up the possibilities of gaining credit approval using your own credit score in the future.
Before you enter a credit agreement with us here at ChooseMyCar, you’ll need to have thought about all of the following aspects of the car finance process:
- What type of car finance is best for you? You may have decided on a guarantor loan, but you’ll still need to decide on a method of car financing such as PCP or Hire Purchase. Both of these options present different benefits, so be sure to check out our pages explaining these deals in detail!
- Choosing your vehicle. Each person has their own specific needs and requirements that must be fulfilled by their car, so it’s important to know exactly what it is that you’ll be needing from your car before you start looking. This way you’ll be able to judge each car against your criteria, allowing you to find the perfect car for your daily needs. Whether it’s compact city cars, spacious family cars, or something a little sporty, we’ve got something for everyone in our range.
- Setting a realistic budget. It’s easy to want to stretch your budget further than is feasible to get the car of your dreams, but if you’re struggling with bad credit this won’t be a realistic option. By setting yourself a strict budget that’s definitely affordable, you’ll minimise the chance of missed payments, meaning you’ll be able to manage your car finance plan with greater ease.
To start your car finance journey, simply get in touch with ChooseMyCar today!
The best used cars for young drivers that can be bought with a guarantor loan
For young drivers, the thrill of passing their test can be quickly overshadowed by the seemingly daunting task of finding car finance. Thankfully, guarantor car finance is, in theory, a straightforward option for all parties because, if the loan repayments are made on time, then the guarantor never has to get involved, the lender gets their money back, and the driver gets to own the car and build their credit score - everyone's happy!
So, once you have confirmed your guarantor finance loan rates the next step, the most exciting one, is looking for your dream first car! Now, most young drivers will have a modest budget which is why we have a fantastic range of used cars, that are available for £5,000 or less, which are perfect for people looking for low monthly payments. Make no mistake though while the price tag might be small, that doesn't mean you aren't getting amazing value for money. All our cars on offer feature modern features, efficient engines, and great styling. The days of inheriting your grandad's 30-year-old hatchback, or getting insured on your Mum's people carrier are, thankfully, over, thanks to ChooseMyCar! We've outlined 4 of our favourite cars that can be purchased using guarantor car finance for people with limited credit history, and next to no credit background, aka, young drivers!
A bit like a VW Polo, but cheaper. The SEAT Ibiza doesn't exactly have the build quality, and may not be as refined, but for a young driver, it has everything you could ever want. As well as ticking 90% of the boxes, the Ibiza is reasonably priced and pretty inexpensive to run. It also looks nice, as most Seat’s do, and its sleek, sporty design is backed up by a thorough list of kit. Its five-star NCAP safety rating is sure to put your Mum’s mind at ease, too!
The Ford Fiesta is the UK's most popular car, and it's easy to see why, it’s a great all-rounder that's fun to drive, as well as being practical. Its popularity also means that there are plenty out there on the used car market. Renowned for its value for money, you’ll be getting a practical, safe, and reliable, run-around with a pretty awesome spec list that won’t break the bank.
For something a little more premium, check out the VW Polo. It’s a Volkswagen, after all, so you can expect safety, reliability, and awesome build quality. Insurance is low which is good because you might have to increase your budget if you want some of the more advanced mod-cons. The other three that we have mentioned might be friendlier on the wallets, but they really can’t be matched when it comes to the build quality.
From Germany to France, the Clio is another great all-rounder, good value for your money, and full of va-va-voom! It’s super popular among young people because of its petit running costs, and cheap insurance options. As well as looks, the Clio also has a genuinely impressive safety rating and is great to drive in the city, and in more rural areas.
Why used cars are best for young drivers and people with bad credit
While the section title focuses on young drivers, and people with a less-than-perfect credit rating, the fact is, used cars are fantastic for almost everyone. Mainly because there are just so many of them! You could spend hours on our website looking at cars from any number of manufacturers, and brands, and never see the same car twice. In addition, you can all but guarantee that the cars, especially the ones on the ChooseMyCar site, have been inspected, cleaned, and checked to ensure they are up-to-date, and provide fantastic value for money.
For the moment, though, let's focus on why used cars are ideal for people who are looking for their first car, or have a poor credit rating. Firstly, the lack of further depreciation means that, in general, monthly payments are lower. A new car starts to lose value the minute it rolls off the production line but, after it has been owned 2 or 3 times, those depreciation costs start to plateau out and it no longer becomes the concern that it might have been, had it been new.
Secondly, the number of features in used cars nowadays could, arguably, rival that of new models. The turnover in used cars means that features such as LCD screens, sunroofs, and quality sound systems are pretty much commonplace. This is often overlooked but it certainly shouldn't, especially when you consider that some of these additional features would cost extra if you were to buy the car new.
With used cars, there is no waiting period, once you have secured the guarantor car finance package, you're free to go ahead and find the car you've been longing for and, in many cases, drive away the same day. Insurance, as well as finance, is another big bugbear for people, whether they are young drivers, or have bad credit. However, with low monthly costs, you've got more opportunity to secure an insurance package that works for you.
Finally, another great benefit is the fact that you can plan your monthly payments, there is no need to waste time-saving up to pay in cash, in full. You can simply sit down, work out your budget, and regular income, and use that figure as a basis to find a used car and, with so many out there, you're all but guaranteed to find one that is right for you.
Here at ChooseMyCar, we love used cars no matter who is looking for them. And, when it comes to guarantor car finance, we have seen how it acts as a fantastic opportunity for people to work their way up to an excellent credit rating, which helps them with other important life events, such as future mortgage applications.
This deal also lets them drive their ideal car, and be reassured that the 3rd party, who is very often a family member, will be on hand to help out if they are unable to pay, for whatever reason. Whatever your personal circumstances, or financial circumstances, we have a variety of deals for people who lack a strong credit history.