Guarantor Car Finance
In an ideal world, you’ll be able to get whatever car finance option you want. However, that’s often not the case – especially if you’re a young driver! With a non-existent or bad credit score and financial history, it can be tough to get accepted for car finance agreements. That’s where Guarantor Car Finance comes in.
With guarantor car finance, lenders are more likely to accept a car finance application from young drivers, even if they have a spotty or limited credit history.
Guarantor car finance includes a “third party’ – usually, a family member or close friend held financially responsible for the debt if you cannot make the monthly repayments.
Having a guarantor is a sort of ‘safety net’ for the finance provider, and it can allow people who would otherwise be rejected for car finance to get a car.
Note: Even though your guarantor is the lender’s safety net, you’re still signing it as the first port-of-call for paying the finance.
Can I get car finance with a guarantor loan as a young driver?
The fact is that if you’re a particularly young driver with bad credit, guarantor car finance might be all you can get!
However, this isn’t necessarily a bad thing because you can end up with a better credit score – if you can prove you’re a reliable person and don’t need to fall back on the guarantor.
Guarantor loans are an established way to get car finance if you struggle with a bad credit history. A common problem for young drivers is that they don’t have a credit history at all!
So If you have a poor credit history, a guarantor car finance deal can be a solid way of building it back up, which could help you get a personal loan or a mortgage.
To summarise, guarantor car loans are an excellent option for a car purchase, as they are likely to be accepted and have the bonus of improving poor credit scores.
Choosing the right person to be your car finance guarantor
Guarantor car finance loans come with many points to consider and shouldn’t be taken lightly, particularly when choosing the person who acts as the guarantor in the agreement!
In most cases, the car finance guarantor has a close relationship with the applicant, often a family member, as the guarantor will need to trust them. Think very carefully about who you ask to be your guarantor.
If you don’t make the monthly payments on the car, your guarantor may be stuck with the vehicle. This could mean more than just an awkward conversation, as they’ll start losing out on their own money.
As such, you must have an excellent rapport with the guarantor: a parent or guardian is usually the best option. They also need a good guarantor credit history and a regular income. If things don’t work out for you and you get into a tricky financial situation, they can comfortably make those payments.
How is guarantor finance different from other car loans?
In many ways, it’s not. You still make monthly payments for car finance, and you’ll still pay some interest. Fundamentally, it’s still just a car loan.
The main difference with a guarantor car loan is a third- person in the relationship. Usually, a loan goes two ways – between you (applicant) and the lender. A guarantor loan adds in the third party – the guarantor.
Having a guarantor means less risk for the lender, as the guarantor agrees to repay the finance should the applicant fail on the loan (continues to miss payments).
Why are guarantor loans suitable for young drivers?
Anyone can take out a guarantor car finance loan for a car purchase. However, it’s a pretty standard option for the young driver, as we tend to have a poor credit score, making it challenging to get accepted for other loans.
Due to the nature of guarantor car finance loans requiring a third party, they’re not usually the first option people looking for car finance loans tend to take. Ultimately, guarantor loans are for those who are unlikely to be accepted on their own credit history.
We recommend trying to get the credit on your own, if possible, as you’ll build a better credit score by doing so, and it’s good to be independent. But as we know, that might not be possible.
Who can be a guarantor for you?
Getting finance with a guarantor isn’t something to be taken lightly. You want the guarantor to be someone you’re incredibly close with and trust a lot. Usually, this is a parent or close friend.
The guarantor needs to be over 18 and have a good credit history. However, finance providers can decide their criteria, and it’s not uncommon for finance companies to require guarantors to be over 25. Sometimes, lenders can even request that the guarantor be a homeowner.
Guarantors will require affordability checks, which can show up on their credit history. They will also need to have good credit scores, as the bank needs to know they can comfortably afford to repay the loan should the borrower default.
If you don’t make the loan repayments, your guarantor can face the consequences. Resulting in their credit score tanking or can even put their property at risk of repossession.
What are the guarantor requirements for car finance:
Have a good credit rating
You’re considering guarantor car finance because you have a weak credit profile or bad credit. So it stands to reason that the guarantor requires to have a good credit score! This is why a guarantor is usually a parent or guardian – typically someone older than you.
Have a good repayment history
While this is similar to a credit score, it is slightly different. For instance, you can have a ‘good’ credit rating without having a massive history of repayments. However, your guarantor has a few large monthly repayments, like a mortgage and a car loan. Assuming they’ve consistently made those payments for many years, it can make them look very reliable to lenders.
It goes without saying that the guarantor has to be someone you trust greatly – and probably more importantly, trusts you! We always recommend older family members here. If you decide to choose a trustworthy mate, tread carefully. You don’t want to ruin a friendship over a car.
Be of a certain age
While you can apply for finance at 18, most lenders require your guarantor to be a bit older. Typically this is either a cut-off of 21 or 25. No problem if it is your parents.
(Sometimes) be a homeowner
As all financial lenders are different, their requirements will vary. We’ve found that many lenders require a guarantor to have their own home, as having a mortgage shows a level of financial maturity and responsibility.
So, who can’t be a guarantor?
If you fit the above criteria, you can likely be a guarantor.
However, if the following applies, then you’ll need to find someone else:
Non-UK residents: Unfortunately, your primary school pen-pal Jean-Claude from Paris won’t cut it for a guarantor.
Nor, your partner, especially if you live at the same address or are married: The lender’s logic here is that if you experience financial difficulties and can’t make a repayment, your partner (directly financially connected) probably will as well. Having someone with finances completely separate from you is more reliable.
Lending criteria can seem like a pain, but ultimately, they are there to protect everyone. A credit agreement can be a great tool, but it must be safe and manageable, with an affordable monthly payment – for both the lender and yourself! By making sure a guarantor is entirely reliable, the risk of the loan decreases for everyone.
Things to consider before committing yourself to be a guarantor
So what if you get the request to be a guarantor for someone’s car finance agreement? It’s not something to be taken lightly, and it can be a big financial decision.
In many cases, people agree to be guarantors, not even considering that the applicant won’t make the repayment. They wouldn’t do that to you!
But if COVID-19 has shown us anything, the world can change rapidly, and no employment is guaranteed forever.
If you are confident in the person, especially if you are the applicant’s parent, a guarantor can be beneficial for a loved one. It helps build their credit score, and most importantly, you can ensure that they’re getting a reliable car that will keep them safe.
Recap, here are the risks of being a guarantor on a car finance loan
If you can deal with all of these, then go ahead!
- You might end up having to pay for the entire finance agreement. Failure to make that repayment will impact your credit score – not just the lenders.
- Even if you fall out with the applicant, you are still responsible for the contract until the debt is closed. Is the person someone with whom you can foresee falling out?
- If you have to make the repayments, make sure it wouldn’t wreck your budget. Remember, a car loan can last for multiple years: do you have the financial stability to deal with that if it came to it?
What does the applicant (not the guarantor) require to apply for guarantor car finance?
Applying for a guarantor car loan is much the same process as applying for any other finance. Of course, you will need to be over 18, have full UK residency, be employed and usually make at least £1000 per calendar month.
In terms of your details (the applicant), you’ll need to let your lender know:
- Your full name
- Three years address history
- Phone number
- Driving licence number
- Employment history
- Residential status
On top of this, as a new driver, get yourself on the Electoral Register. While this isn’t strictly a requirement for car finance, it will automatically improve your credit score. It’s an easy win.
What is the application process for guarantor car finance?
Applying for the car loan
If you’ve found that you’re having no luck getting car finance in your name and opt for a guarantor, you’ll need to get their (the guarantor’s) details and have them go through some lender and credit check.
A search of the applicant’s and the guarantor’s credit file
The lender will check both the applicants and guarantor’s affordability by using their income and employment history. They’ll also do a Hard credit search on the guarantor’s file.
Buying the car and making the loan repayments
Then the easy part comes – you, the lender (previously the applicant), buy your car and begin to pay the money back! Usually, simple monthly payments comprise the car price and the interest (APR).