“Guarantor car finance” can enable young drivers with a poor credit rating to finance a car. You can buy your car from any dealer and pay for the insurance and road tax out of the loan, but the APR on Guarantor car loans is higher than for other types of borrowing
How do Guarantor Car Loans work?
Guarantor Car Finance might be appropriate if you have a bad credit score and want to buy a car on finance.
With a guarantor loan, you need someone who can guarantee the loan should you fail to make the repayments.
Your Guarantor could be a family member or friend; they will need to:
- Be aged between 17 and 75.
- Have a Good credit rating and preferably be a house owner (but not essential).
A Guarantor car loan is in your name, you are the borrower, and you have a responsibility to both the Lender and your Guarantor.
Monthly repayments are required, and the term of the loan can be between one and five years.
Register as someone’s Guarantor
When someone needs car finance with a Guarantor they are likely to have a poor credit history so before you agree to act as Guarantor, ask yourself:
- Can the borrower afford to make the repayments?
- Do you trust the borrower to make the repayments?
- Is the loan wise? Does the borrower need the money or could they save up?
- Are you prepared and able to pay back the loan if the borrower can’t or won’t do so?
At the start of the loan
Part of the process of taking out Guarantor car finance includes a phone discussion from the Lender between you (the applicant) and your Guarantor.
Guarantor Loans are between £500 and £5000, and you need to be confident you can make the repayments.
The loan when released goes to your Guarantor, and they give the money to you. However, you are the Borrower, and it is your responsibility to make the repayments to the Lender.
The rate of interest is higher with this type of car finance, and so you really should be looking to pay the loan off as early as possible.
When the Guarantor loan ends
With a Guarantor Loan, you own the car from the beginning, but you must continue to make all your repayments.
Car finance with a Guarantor is one way to rebuild a bad credit rating and by paying off the loan on time without any defaults; you will improve your credit score for the next time you want to get finance.
Pros of a Guarantor loan to buy a car
- No upfront deposit required.
- With the cash in your pocket, you may have a better bargaining position with a dealer or private owner.
- No limit on the number of miles you can drive!
- A Guarantor Loan is useful for young drivers with a poor credit rating or who are finding it hard to get approval for finance.
- This form of car finance with a Guarantor can help to improve your credit score, but you must keep up to date with your repayments
- Guarantor loans are unsecured when you buy a car, you become the legal owner, and can change or sell the vehicle when you want to.
- You can usually pay off the loan early without incurring any extra charges.
Cons of Guarantor loan finance
- The interest rate (APR) on a Guarantor car loan is higher than for other personal loans and car finance deals.
- Car finance with a guarantor! A big responsibility.