Not all who apply for car finance can get approved. 😙 Some people find it difficult to get car finance because of a number of factors like poor credit scores, insufficient documents, or just honest mistakes in the information they provided. If you are one of those people having trouble securing car finance, perhaps you may want to consider getting car finance with a guarantor 🤷♀️
A guarantor could be very helpful if this is your first time applying for car finance, if you have a low credit rating, or if you want to get a bigger loan amount. Having someone to vouch for you can boost your application for car finance. So, what is a guarantor, and how they can help you get car finance?
What is a Guarantor?
Before the utilisation of computers as the number one credit scoring system to assess your risk, banks and finance companies often used guarantor loans to lend money. A guarantor is a person of good financial standing who can take on your financial obligations in case you have problems repaying the loan. This would mostly be a parent or family member.
A guarantor can increase your chances of getting car finance and other loans. Having a person who has a good financial track record vouch for you makes you less of a risk to financial institutions. However, before you ask a person to be your guarantor, it is necessary that the person knows the responsibilities that come with the role.
Guarantor Car Finance
Every time you apply for a loan or car finance, finance companies usually will check on you especially if it’s your first time applying. They will be examining your finances and credit history to make sure that you are responsible enough to make repayments.
Poor credit history due to missed repayments from previous loans could affect your application. Sometimes, some simply lack credit history, which is the case for most young people who want to buy cars. If this is the case, there’s a higher chance that your application will be refused by finance companies.
But don’t lose hope just yet. There are a lot of people with insufficient credit histories who are still able to secure finance deals through guarantors. There is a type of loan called guarantor car finance where another person will vouch for your capacity to pay.
The guarantor also agrees to make payments on your behalf if you are unable to do so. Basically, a guarantor will willingly take responsibility for making the repayment in case you default on your contract with the car finance company.
Who Can Be My Guarantor?
Anyone can be your guarantor as long as they meet the criteria. A guarantor can be a co-worker, a friend, or a family member as long as it’s not your husband or wife. They should be at least 21 years old, have an impressive credit history, and not be linked financially to you. The last criterion is the reason why a husband or wife can’t be a guarantor for the other because they are linked financially.
Before you ask anyone to be your guarantor, make a list of people that will surely qualify and help you with your loan application. After listing all the possible guarantors, narrow down your list to two persons as the preferred and reserve just in case your first choice is not available. The potential guarantor must really know and trust you enough to agree to help you with your financial commitments if necessary. And they must be prepared to have a credit check done on themselves.
Financial capacity is therefore necessary for your potential guarantor since they should be able to provide support if the need arises. Their suitability and financial stability should be taken into consideration. It is also important that the responsibilities of a guarantor are clear to them and they should be aware of the financial risks in case you have difficulty in paying.
What are the Benefits of Getting a Guarantor?
There are times when the car finance company will request that you have a guarantor. It could be because you don’t have enough credit history yet, so the lender can’t fully assess your past behaviour when it comes to your finances and how well you repay loans. Getting a guarantor for your car finance application can increase your chances of approval. Here are other benefits you can enjoy by having a guarantor.
Better Chances for Approval
With guarantor car finance, car finance companies will look primarily into the credit history of your guarantor. If the guarantor has a great credit history and credit record, you will most likely get car financing. Just make sure that you are diligent in repaying the lender so that you and your guarantor won’t have any problems along the way.
Improve Your Credit Score
Another benefit of having a guarantor is you will have the opportunity to improve your credit rating by paying your monthly amounts on time. And then a stronger credit rating resulting from this could also mean you will qualify for higher loan rates in the future. Always make your monthly repayments on time so that you’ll have a good record in your credit history.
Loan a Bigger Amount
You can also benefit from having a guarantor even if you are qualified for car finance. A guarantor can help you to take out additional money than you could borrow on your own. It will also allow you to buy a more expensive vehicle, as long as you can unquestionably afford the monthly dues. Make sure that you take the time to assess your finances carefully first. before you decide to buy a more expensive car so that you’ll know for sure that you can comfortably make the monthly repayments.
Guarantor car finance is a good option if you need a boost for your car finance application. Before you ask someone to be your guarantor, make sure that they fully understand the responsibilities that they will undertake in case you find it difficult to repay the loan. Also, make sure you will be able to make the monthly payments so that you can have a good credit record and you and your guarantor won’t have any problems. You don't want to fall out!