What is Guarantor Car Finance?
Guarantor car finance is a type of car finance agreement in which a trusted individual, known as a guarantor, agrees to be financially responsible for your loan if you cannot repay it. This means that if you default on your payments, your guarantor will be liable to pay the remaining balance.
This type of finance is a good option for those looking for car finance but whose credit score differs from their desired level. Guarantor car finance does not mean you are guaranteed car finance, but lenders will be more inclined to approve you, as another person will be responsible for the debt if you cannot repay it.
How does it work?
Application: You apply for car finance the usual way.
Guarantor: If approved, you’ll need to find a suitable guarantor who is willing to provide financial backing.
Guarantor Agreement: You and your car finance guarantor will need to sign a guarantor agreement, which outlines the terms and conditions of the guarantee.
Loan Approval: Once the guarantor agreement is in place, the lender will assess your application again, considering the guarantor’s financial standing. If approved, you’ll receive the loan.
The Benefits
Improved Approval Chances: Car finance with a guarantor can significantly increase your chances of being approved for car finance, even if you have a poor credit history.
Lower Interest Rates: Sometimes, lenders offer borrowers with guarantors lower interest rates.
Flexible Terms: Guarantor car finance can often offer flexible repayment terms to suit your budget.
Some Considerations
Guarantor’s Responsibility: As a guarantor, the individual is legally obligated to repay the loan if you default. This could have serious financial consequences for them. It can also affect your relationship with them.
Credit Impact: If you default on your loan and your guarantor has to pay, it could negatively impact both of your credit scores.
Thorough Research: Before applying for this type of car finance, it’s essential to research different lenders and compare their terms and conditions.
Can you get a Guarantor for Car Finance?
Car loans with a guarantor can be a helpful option for those struggling to secure traditional car finance. However, it’s essential to understand the responsibilities and potential risks involved for both the borrower and the guarantor. If you have someone willing to be your guarantor, and you have researched the details of the agreement, then it can be a great option.
Who can be a Guarantor for Car Finance?
It is important to choose a guarantor you trust and someone who can afford the repayments if you default. They are usually close friends or family. Remember, being a guarantor is a big commitment, so trust is a big factor.
A guarantor should also be aware that they will face financial consequences if they cannot repay the loan. It could affect their credit score, as well as your own.
If you want to know more about guarantor car finance or see alternative options for car finance, why not see our complete guide to car finance—everything you need to know!
