What is Guarantor Car Finance?

More than 90% of the new cars purchased by UK motorists are taken out on finance. For those with poor or no credit history this might not appear to be an achievable prospect. However, with guarantor car finance, if you’re a young driver or have bad credit you could secure a car of your own.

John Ellmore 13 November 2020

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What is a guarantor loan?

A guarantor loan is a type of personal loan with the addition of a guarantor to guarantee repayment to the provider.

By applying for a loan with a guarantor you can increase your chances of having your application approved because with guarantor loans you are essentially mitigating the risk to the lender.

With a guarantor loan you will be responsible for paying off the credit that has been extended to you; however, if you can’t, your guarantor will step in to make the payments in your place.

So, what is guarantor car finance?

With guarantor car finance, a third party guarantor (often a family member or friend) agrees to guarantee the car finance repayments for the borrower. The borrower is still responsible for making the loan repayments, but if they miss any, this responsibility will then fall to the guarantor.

Having a guarantor could help people get approved for car finance that would have otherwise been declined.

How does guarantor car finance work?

Before rejoicing that you can get behind the wheel, read through these finer points on how guarantor car finance works.

Providers of guarantor car finance will assess your credit score and financial situation just like any other lender, before deciding whether to approve your application.

Even though a guarantor can help those with limited or poorer credit histories get approved, you should still try to get your credit score and finances in as good a shape as possible before applying to get the best deal and improve your chances of acceptance .

Like other forms of car finance the loan is secured with collateral to protect the provider from borrowers defaulting. However, unlike other forms of finance, the car you lease is not the security, the security is the guarantor because if you can’t pay they will.

The guarantor should have a sufficient income to prove their affordability to act as guarantor, as well as a strong credit history, unblemished by missed payments. This will ensure your application is looked at more favourably than others with bad credit.

If car finance will be your first loan, find out all you need to know about APR and how it will affect the total amount you need to repay in our comprehensive guide.

How much can I borrow with guarantor car finance?

How much you can borrow on guarantor car finance will be defined by your financial circumstances, as well as your guarantor’s.

Who can apply for guarantor car finance?

Almost anyone. If you are over the age of 18, have a guarantor, are a UK bank account holder and are in full time employment you can apply for guarantor car finance and get on the road.

Don’t forget that if you miss a payment on guarantor car finance, you could damage your credit rating as well as your guarantor’s credit rating.

Damaging your credit history is a risk, but it doesn’t mean you can’t apply for and be accepted for credit in the future. Find out how to do a u-turn on your bad credit and rebuild your credit history.

Who can be a guarantor?

A guarantor can be pretty much anyone you have a close relationship with that meets the eligibility requirements set by the lender. From parents to aunts, uncles, grandparents and friends, as long as you have a mutual understanding and a high level of trust with the borrower you can be a guarantor.

If you are looking into becoming a guarantor you’ll have to be prepared and willing to make payments on the behalf of the borrower should they miss any. You’ll need to be over the age of 21, and have a good credit history with a track record of making payments on-time. Some lenders may require a guarantor to be a homeowner.

If someone is asking you to be their guarantor, ensure you trust that person to make every effort to make payments on time, and don’t enter into agreements lightly. This advice goes both ways, for the borrower and potential guarantor.

If you are thinking of becoming a guarantor, potentially to enable your child to own a car, you’ll need to go through the same application process as them, which will include reference checks to your credit file. Here’s what to consider if you are thinking of becoming a guarantor.

Pros and cons of guarantor car finance

Pros Cons
  • Your application is more likely to be approved
  • You may be able to borrow more
  • It’s a good option for those with bad credit
  • Paying off the loan could boost your credit rating
  • Defaulting on the debt could cause relationship tension
  • Fail to make payments and you could damage both yours and your guarantor’s credit rating
  • If you damage your credit rating, it can be hard to take out finance later
  • Interest rates can be higher than other personal loans, but lower than other car finance types

Can I get car finance without a guarantor?

Provided your credit history is good and you’re over 18 you should be able to get car finance products without a guarantor. Ask yourself if you need a guarantor to receive car finance, or whether you can comfortably afford to apply for finance yourself.

Guarantor car finance can come with high interest rates, so if you are in a position to get your application approved without a guarantor, this will often be the more affordable option.

About the author:

John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more

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