When you’re looking for car finance, a history of poor credit or even no credit can make it more challenging.
You could struggle to get accepted or to find a deal with a good interest rate. One of your options is to bring a third party in to act as your guarantor.
A guarantor is someone who will ‘guarantee’ your car finance. That means they agree to repay the total amount owed on the car if the borrower can’t afford to pay or hasn’t paid what they owe.
They effectively become a safety net for the loan and missed payments that may occur.
Guarantor car finance is appropriate for those who may struggle to get approved for a loan otherwise.
If someone has a bad credit rating, for instance, any history of frequently missing payments or defaulting, lenders may deem them too much of a risk to lend to.
Having a guarantor minimises that risk.
It’s not only suitable for those with bad credit either. It can be helpful for young drivers who may not have built up enough of a history of borrowing and repaying debt for a lender to be able to judge their risk. Or, for those who don’t have a regular income, having a guarantor can boost your chances of being accepted for car finance.
Guarantor car finance works exactly the same as regular car finance except there’s a third party involved.
If you’ve done an eligibility check to find out if you’ll get car finance and it looks as though your chances are slim, a guarantor loan can help you get accepted.
You’ll still need to make monthly repayments over an agreed term, but as soon as the agreement is signed, as long as all the repayments are made on time, the guarantor should have nothing more to do with the loan.
The guarantor is there to reassure the lender that the finance will be repaid on time and in full.
If you don’t make a payment, they agree to take final responsibility for your loan and will pay on your behalf.
Guarantor eligibility varies between lenders. However, in general, a guarantor can be almost anyone over 21 – some lenders may accept those over 18.
Although a guarantor is usually a family member or a close friend, people who are financially connected to you – such as a spouse or partner with whom you have joint finances – are generally not allowed to be a guarantor on your loan.
A guarantor needs to be someone with a good credit score and a good credit history of making regular repayments.
Ideally, the guarantor will be a homeowner; however, sometimes lenders will accept someone who isn’t but has lived at the same address for a set number of years.
The guarantor, like the borrower, will also need to be part of the application process, providing information and documentation about themselves and their financial situation.
Like any financial decision, you should weigh up the pros and cons of having a guarantor for your car finance.
If you have good credit or think you have a good chance of acceptance, you can apply for car finance without using a guarantor. So it depends on your circumstances. Those with bad credit can still get car finance, but they may struggle to get accepted or get the terms they want.
For young drivers, your age could be against you, especially if you haven’t had a chance to build up a credit history or you don’t have regular employment yet.
Remember, if you’re not sure you’ll get accepted for car finance on your own, submitting many applications will damage your credit score, so it’s always best to check your eligibility first.
If a guarantor loan isn’t an option, there are alternatives out there that could help you get on the road with car finance.
If this sounds like it could work for you, Hippo can help. We can run a soft credit search for you to find out what your options are without affecting your credit score.
With access to a large range of lenders, we can find one that we think will offer the best finance option for your circumstances.
Interested in finding out more? Or want to explore your options? Try our soft credit search or get in touch with our team to find out if we can help you secure car finance either with or without a guarantor.
We expect more than 51% of our customers to achieve this rate.
|Loan Amount||Total Cost of Credit||Representative APR||60 Monthly Payments||Deposit Amount||Loan Term||Total Amount Payable|
|£7,500||£3831||19.1% APR||£188.85||£0||60 Months||£11,331|
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