If you’re looking to apply for a loan to get the dream car you always wanted –but don’t have a good credit score or no credit history– you might want to consider getting a car loan with a guarantor.
But, how does it work, who can be your guarantor, and what are the eligibility requirements?
Read on to find out.
A guarantor car loan is a type of personal loan where a third-party guarantor agrees to guarantee the repayments for the borrower.
The borrower is still responsible for the loan repayments, but if they miss any or fail to keep up with them, the responsibility falls on the guarantor.
The process of obtaining a car loan guarantor is pretty simple.
If you’ve found a good car finance deal with a guarantor, you’ll need to fill out an application form and wait for a specialist to process your car request. The lender will look at your credit score and financial situation to decide whether to approve your application.
When applying for car loans with a guarantor, keep in mind that your guarantor will have to pass the lender’s checks as well.
How the funds will get to you depends on the lender. Some lenders transfer the money to the guarantor first.
If you can’t pay your monthly payments, your car finance guarantor will be responsible for paying.
Defaulting on payments will hurt both your and the guarantor’s credit score.
A guarantor can be pretty much anyone that meets the car finance guarantor requirements set by the lender. They can be a family member, a friend, or anyone you trust.
The car finance guarantor must:
To apply for a car loan with a guarantor, you’ll need to provide:
However, whether you’re eligible to apply for a car loan with a guarantor in the UK, will depend on factors like:
Before approving car finance with a guarantor, your lender will ask the guarantor to provide:
This will help the lender determine whether the guarantor can pay back the loan (in case you default on payments).
A guarantor for car finance is a good idea for people who:
Being a guarantor is a risky business.
If you agree to be a guarantor for a car finance loan, you will be responsible for covering any missed payments and even the loan in its entirety if the borrower can’t.
This could put a strain on your relationship with the borrower.
What’s more, defaulting on payments can damage your credit score, even if the loan isn’t technically yours, which will, in turn, hurt your chances of getting a loan or good interest rates in the future.
You may be interested in: How to get defaults removed?
Getting a guarantor for a car loan is a great option for people who have little to no credit history or a bad credit score.
Having a guarantor on the loan can help increase your chances of getting a loan and might even boost your credit score– provided that you don’t miss any repayments.
Car guarantor loans are popular among people who are less likely to get approved for a regular loan because of a bad credit score.
You cannot apply for finance on someone else’s behalf. The person signing the agreement usually has to be the registered keeper and the main driver of the vehicle.
The amount for a car loan with a guarantor depends on a variety of factors, including your and your guarantor’s financial circumstances, employment status, and credit history.
My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.