What is a guarantor Loan for Car finance?

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.

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Frequently Asked Questions

Guarantors will have to undergo a credit check at the same time as the borrower. This is done to make sure that they are in the right situation to be making any repayments if they are called upon, and the lender will want to see that they are reliable.

The length of a car finance agreement will vary for a number of reasons. The overall length of a term is usually measured in 12 month increments. 

These terms usually start with a minimum of 24 months (2 years) upt to a maximum of 96 months (8 years). Generally terms for used cars are shorter than those for long cars. 

While the monthly repayments will likely be lower on a longer term plan, it’s worth working out how much interest you’ll pay if you opt for something over a longer period of time.

It is possible to get car finance with bad credit. Many lenders provide loans and finance options specifically for people with bad credit.

Personal loans can be a great car finance option if you have bad credit. And a guarantor loan may help you avoid higher interest rates; this is where a friend or family member co-signs the loan, agreeing to meet payments if you're unable to.

With pre-approval on a personal loan, you can walk into the dealership like a cash buyer. You can be in a better position to negotiate on price. And you can avoid the stress of the finance office.

Your credit file is checked if you apply for car finance. And you'll usually have to provide proof of ID, address, and income. The specific documents you'll need ultimately depend on the finance provider you go with.

Providers will check your credit score when you apply - initially via a soft search. They'll perform a hard credit check if you choose to enter into a contract with them. Most lenders will need to see your driving licence - full or provisional. You may also be asked to provide:

  • Your passport - for proof of ID
  • Utility bills or council tax letters - for proof of address. These usually need to be dated within the last three months.
  • Payslips - for proof of income and to make sure you can afford the payments. Some providers may ask to see a few months' worth.

While it’s not ideal, there are circumstances that may occur that stop you from making a payment.

If you are unsure about your ability to make an upcoming payment we would recommend contacting your lender. This way there may be something that can be worked out before the payment is missed.

If you’ve already missed your payment, and can afford to make it, contact your lender as soon as possible to make the payment. You may incur a late fee, but making the payment can stop anything else from having.

If you continue to miss payments there is a chance your car could be repossessed and you will still owe for missed payments. Your credit rating will also be negatively affected.

A guarantor loan is different from other loans in a couple of ways. First of all, they include a third party. That third party will be someone you know who will act as a guarantor and will make any of the payments you miss. Secondly, guarantor loans are generally unsecured, meaning they aren’t placed against an item, like the car in a car finance agreement, so the car is unlikely to be reclaimed if a payment is missed as the guarantor will step in and make it.

Yes, you can get car finance using a guarantor. Having a guarantor may make a lender more likely to accept someone with bad credit or no credit history as a borrower. This means they can be a good option for people in these situations. 

While a guarantor can help someone who has bad credit get approved for car finance, they themselves cannot have a poor credit score.

While it’s not uncommon, and often preferred by lenders, for a guarantor to be a homeowner, it’s not essential. They could be a renter or even live with their parents. The important thing is that they can prove that they can afford to make any missed repayments.

A guarantor is someone that will meet payments if you miss one. They are usually a parent, but can be anyone not directly linked to you financially, i.e. you can’t have a joint account with this person.

Read our guarantor loan guide.

Having a guarantor can help you to get a loan when you otherwise may not have been able to, i.e. when you are a young driver, self employed or have bad credit.

Lenders may look more kindly on someone in one of these situations if they have a guarantor so they know that there’s less chance of a missed payment.

Read our guarantor loan guide.