Guarantor car loans are the same as most other forms of guarantor finance. Someone else, usually a family member or close friend (or anyone else who trusts you enough), will guarantee that your finance repayments will be made if you don’t keep up with them yourself.
This protects the lender in instances where the applicant’s credit report or personal circumstances suggest there is a slight risk in their ability to uphold payments. The loan provided will pay the guarantor the money and they will pass it to you.
What should you consider before securing this type of car finance deal? Carry on reading to find out!
How is a Guarantor Loan Different to Others?
The primary difference between a guarantor loan and other types of loan is the number of parties involved. This is not just a two-way relationship like most finance deals, as there is a third party involved (your guarantor). It may sound complicated, but guarantor car finance is ideal for those with less than perfect credit history, or no credit history at all.
Guarantors must be aware that they may face financial consequences and their credit score may be affected if the credit is not repaid.
Who are Guarantor Loans for?
If you have low or no credit rating, this is a wise choice, especially if you are a young driver. Many people in the younger generation will not have had adequate time or opportunity to build up much of a credit rating. This is completely understandable and there is nothing wrong with that, but it can make it difficult to find car finance. If you have a guarantor, their credit history that will be taken into account too, not just yours. There are pros and cons to these arrangements so make sure you understand the terms of the loan for you and the guarantor before you arrange one.
Who Should Your Guarantor Be?
Ultimately, this is up to you, but it should be someone you trust and trusts in you. You may at some point need to have an awkward conversation with them about money, so it should be someone you feel comfortable doing so with. They also need to be able to afford your monthly payment if you miss one. Being a guarantor is a big commitment, so trust is important. To protect themselves, the lender may require your guarantor to be over the age of 21 and a homeowner.
Does the Guarantor Get Credit Checked?
Yes, your guarantor will be credit checked before a deal is agreed upon. So, they may want to check their credit score and ensure all their information is correct before you apply for guarantor car finance. Usually, your guarantor will need to have a good credit rating to show lenders they can be relied on to make payments if you cannot.
Is Bad Credit Car Finance a Better Option?
Bad credit car finance is a wise choice for people with bad credit because it removes the need to make an upfront deposit at the start of the deal – and the need for a third party guarantor! Instead, a ‘soft search’ credit check will be conducted to give an indication of whether credit can be sourced for you and the type of credit that can be sourced.
This will not affect your credit report in any way but will provide a good sign of what is available to you. If and when you are happy with what your potential lender finds, then a ‘hard’ credit check will be done to progress your application and prove you can keep up with payments. This means you should be able to find quality cars from quality dealerships, without the need to ask mum and dad to be your safety net!
