A poor Credit Rating shouldn’t hold you back from getting the finance that you need, especially if the car you’re after is essential for work or family. We can’t change the past and there’s no reason to be judged on it if our circumstances have changed.
This is why some clever boffins invented the Guarantor Loan – a neat loan scheme that allows a friend or family-member to guarantee your repayments, making it easier to secure the loan you need.
Guarantor loans have boomed in popularity in recent years, with tens of thousands being agreed every year.
However, while their benefits are huge – especially to those with a poor credit score – Guarantor Loans aren’t without their pitfalls and it’s worth getting a handle on these before you sign up.
Here’s what you need to know.
They Cost More.
Lending money – whether for personal uses or for a car – is a matter of risk to a Finance Company or Car Dealership. The riskier you are to lend to, the more likely they are to lose money on the agreement – and the more they stand to lose if they do.
Guarantor loans neatly circumvent a lot of this, reducing that risk, but it doesn’t eliminate it entirely.
Because of this, Lenders and Dealerships tend to hedge their bets by increasing the cost of the loan, compared to loans given out to those with better Credit Scores.
All loans come with fees and interest payments. These are generally bunched together as “APR”. This is how all Lenders make money. While you might be borrowing £10,000, the final cost to you over the whole period of your repayments might be much more. The difference between the amount you borrow and the amount you pay back goes into the Lender’s pocket.
The APR for Guarantor Loans tends to be higher. This means that, if the worst does happen, they recoup more of their costs and are less likely to make a loss.
While a Guarantor Loan gives you leeway in securing a loan in the first place, it doesn’t eliminate the higher cost of that loan and you need to be aware of this.
Your Guarantor Can’t Back Out.
Once you’ve secured the help of your guarantor and they’ve signed on the dotted line, there’s no going back. Their signature is legally binding: if you default on a payment, they have to make that payment for you. If they don’t or can’t, they will be liable and may face court action.
You have to be clear about this up-front when you ask them for your help. You’re not just putting your financial future on the line, you’re putting theirs up there too.
The good news is that if you make your payments on time and without any issues, your Guarantor’s Credit Score and Credit History will remain entirely untouched. It will make absolutely no difference to their ability to find their own finance in the future.
Even if you do miss a payment, their Credit Score should still be protected, so long as they can make the payment for you without any trouble.
It gets messy if they can’t make that payment, though.
Not only can this impact their credit score, put them in trouble with debt agencies and potentially land them in court, such stress, anxiety and trouble could have another consequence:
Harming your relationship with them.
If you’re asking a friend or a family member to be your Guarantor, you need to be aware of what might happen to your relationship with them if you can’t make your payments. You’re asking a lot of them by involving them in your loan.
They will, of course, be happy to help.
Don’t take that help for granted.
If there’s any question in your mind about your ability to pay back your loan, you need to think very carefully about involving others. Is a relationship with a loved one really worth the price of a new car?
That’s a lot to consider. A Guarantor Loan could get you the car you need but you need to think carefully before signing that contract.
If you want to know more about Guarantor Loans or any other form of Car Finance for people with Bad Credit, call our team or visit ChooseMyCar.com today.
Until next time, stay safe on the road.
Author
ChooseMyCar Staff Writer
ChooseMyCar Staff Writer
Model reviews, buying guides, service tips, and auto news – straight from our team of car experts.
