Worried you might have difficulty borrowing some money to get your much-needed car? 😟 Most new auto purchases in the UK are bought using car finance plans. Getting the best car finance deal is heavily dependent on your credit history. Buyers with little or poor credit scores, students, or young drivers often encounter challenges regarding loan approvals. You might be well able to repay your loan, but how can you prove that if your credit history isn't strong?
If you fall into this category, then this is where having a guarantor might be useful. Guarantor car finance is when a third party, either a friend or a family member, agrees to take responsibility for loan repayments being met. Without having the good credit score you need, going down the guarantor route could be the solution you need.
How Does Guarantor Car Finance Work?
A guarantor is a safety net for your lenders and reassures them that the loan will be repaid in full. The individual you choose should be someone you trust, and who trusts you because if you miss any payments, they are expected to pay.
Before securing anyone for this role, that person should be aware of the financial responsibility they are taking on. With a personal loan from the bank, the cash is forwarded to the guarantor, to send on to the borrower.
Guarantors will of course get credit checked by lenders before the loan is approved. This check is done to determine what kind of borrowers they themselves are and whether they can meet their current financial obligations. Before approaching the lender, your guarantor needs to confirm to you that their credit score is in order and that all the information is updated.
Who Can Be A Guarantor For Car Finance?
Before deciding to use a guarantor, think about what are the requirements are for be a guarantor.
Close Family or Friend
Due to the significant financial responsibility, a guarantor should be someone close to you. There should be a high level of trust and mutual understanding between the two of you. However, individuals financially connected to you or your spouse would not be eligible for this role.
An Adult Above 18 Years
In the UK, a guarantor usually should be above the age of 21 years. Some lenders will allow for individuals above the age of 18. The maximum age of a guarantor is 75 years.
Individuals With A Good Credit History
They must have a strong credit rating that shows their ability to make payments or settle debts. Individuals who are already paying off or have serviced mortgage payments without any defaults are an excellent choice.
Some lenders would require your guarantor to be a homeowner. However, other lenders might consider renters who have been living at the same address for an extended period and have a stellar credit rating. For homeowners, their property may be at risk of repossession with loan defaults.
Who Is Eligible For Guarantor Car Finance?
When it comes to this type of financing, almost everyone is eligible. However, there are some crucial requirements for everyone. If you are over 18 years, you can use a guarantor, often a parent or relative, to apply for car finance for a vehicle purchase.
Young drivers with little or no credit history are also eligible for guarantor car finance. As an 18 or 19 year old, you most likely have no experience of borrowing and paying back. This is where a guarantor comes in handy.
Anyone with a poor credit rating can use the services of a guarantor. This includes individuals who had defaulted on loans before or missed any payments.
As long as you are an adult or a UK bank account holder, you can apply for a loan. A guarantor allows you to get the latest car models and get a better deal.
If you are self-employed without a regular income, lenders might not approve your application. For example, if you are newly self-employed you may not have enough years of accounts to prove your income. In these circumstances, using a guarantor will greatly improve your chances.
Pros Of Guarantor Car Finance
Taking this route when applying for car finance has its advantages. Let's take a look at some of them.
Higher Approval Rate
Once you approach a lender with a guarantor, your application will most likely be approved quickly.
Credit Score Cover
If your credit rating is poor, consider this option. As long as your guarantor exhibits an excellent rating and meets the car finance guarantor requirements, the lender will process your loan much faster.
Higher Loan Amount
Due to the cover provided by your guarantor, the lender will trust you more. As a result, you can borrow more cash and afford a more expensive model with better safety, technology, and comfort features.
Boost Credit Rating
As long as you pay off the loan without any defaults and missed payments, your credit score could improve significantly. Therefore, it's advisable to make sure you make the payments on time.
Cons of Guarantor Car Finance
This type of finance seems like smooth sailing. However, there are several pitfalls to look out for.
Defaulting the monthly payments means that your guarantor will have to pay back the loan on your behalf. Failing to service the loan will most likely hurt your relationship due to the broken trust. Furthermore, even if your relationship breaks down before you pay off the loan, they will still be liable to help if you fail to meet the repayments..
In worse scenarios, both of you might end up in court for the defaults.
Higher Interest Rates
Despite the guarantor's excellent credit score, this car finance agreement is still considered high-risk by lenders. Because of this, you might be charged higher interest rates for the loan.
Damage to Both Credit Scores
A default on the loan payment not only affects your credit score but the guarantor's as well. Once you have delayed making your monthly repayments, both credit ratings are damaged.
Once you damage both your credit scores, it impacts significantly on your future loan opportunities. You both could have a tough time accessing any form of financial arrangement later on.
Work With The Best
Remember, a guarantor car finance arrangement is more than a business transaction. But the involvement of a third party can sometimes make borrowing much easier for you.
As long you both meet the guarantor requirements, lenders should have no problem processing your car loan. Found your dream car? Are you and your guarantor ready to sign up for a car finance arrangement?
Check out exactly how Carmoola works for a quick and painless process. You will have your decision about being able to spread the cost of your new vehicle in minutes! We're always here to help. 😀