Buying a car on finance may not be straightforward for everyone. There may be situations that mean lenders need an additional level of assurance that you won’t miss a payment. This additional assurance may come in the form of a guarantor.
A guarantor is someone that can pick up any payments that you miss during the term of your agreement. These loans are generally unsecured personal loans and while it’s still the responsibility of the person who takes out the loan to pay it back, the extra cushion of a guarantor can help make sure that payments aren’t missed, which can make them more appealing to lenders.
Guarantor loans for car finance are unsecured personal loans and are available on all forms of car finance.
How does guarantor car finance work?
Car finance works like other credit agreements, you must pay off the amount you have been leant over a period of time. Guarantor car finance is no different, but in this case a third party will be added to the agreement.
A guarantor for car finance will be someone who pays off the agreed amount if the borrower fails to make a repayment. This will be the case for each missed payment over the term of the car finance agreement. The guarantor must be arranged before the car finance agreement is applied for. Once that particular car finance agreement has come to an end the guarantor is no longer part of the deal.
Who needs a guarantor for car finance?
Generally people who need a guarantor to help them get a loan are people with bad credit or no credit history. For car finance this generally means they fall into the following categories, although this is not an exhaustive list and each application is treated differently:
- People with bad credit
- Young drivers who have not had a chance to build up a credit history
- Self employed people who can’t prove their income, or those who have just started a new job
In each of these cases, a guarantor may be required by a lender before they approve a loan. This doesn’t mean that the lender should be relied upon for actually paying it off though, as they should mainly be used as a safety net.
Who can be a guarantor?
A guarantor can be anyone over the age of 18 for some lenders or 21 for others, that is financially independent to the person taking out the loan. This means that a guarantor can’t be someone the applicant has a joint account with, whether it’s a partner that they split everything with or a housemate that shares an account just for bills.
A partner, spouse, parent, friend, aunt, uncle or any other person you know can act as a guarantor as long as there is no financial link between them and the applicant. We would recommend only using someone where there is a mutual trust, however.
Guarantors will need to have good credit scores as they will have to undergo a credit check before they can be confirmed. Lenders need to make sure that the guarantor can afford to make the repayments if the lender fails to do so.
Guaranteed car finance for bad credit
Using a guarantor can be of particular importance for those with bad credit. It can allow them to enter a car finance deal when the previously may not have been able to do so, and it can also help them rebuild their credit rating. While the rates may be higher than hire purchase car finance, customers will have a better chance of being accepted onto a guarantor deal.
If someone with bad credit has a guarantor loan and consistently makes their loan repayments on time it can assist with improving a bad credit score. This means that the next time you’re applying for car finance you may be in a position to apply for a more traditional method of car finance. For more information on bad credit car finance check out our guide.