What is guarantor car finance?

Guarantor car finance is when you take out a loan to buy a car, and a third-party agrees to repay it if you don’t. By reducing risk for the lender, this can help those with poor or no credit history to access finance.

Rhiannon Philps Published on 26 August 2020. Last updated on 30 June 2021.
What is guarantor car finance?

If you’re looking to buy a car, you might consider getting one on finance. However, if you don’t have a great credit score, or you don’t have much of a credit history, you may struggle to get approved for finance or to qualify for the best rates.

This is where guarantor car finance can help. With the help of a guarantor who will make the repayments if you aren’t able to, you may find it easier to get accepted for a loan to buy a car. The guarantor mitigates some of the risk to the lender, so they may be more willing to approve your application.

Find out more about what guarantor car finance is, how it works, and whether it’s right for you.

What is guarantor car finance?

Guarantor car finance usually comes in the form of a personal loan, rather than a traditional hire purchase or PCP agreement, though you may find some options for these as well.

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, such as young drivers or those with a poor credit history.

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

How does guarantor car finance work?

When you apply for guarantor car finance, providers will assess your credit score and financial situation just like any other lender, before deciding whether to approve your application. Your guarantor will also need to pass the lender’s checks.

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

If the lender approves your application for guarantor finance, you will then be able to buy your car. It will depend on individual lenders how the funds get to you as, for example, some lenders will transfer the money to your guarantor first.

You will then be responsible for repaying the loan over the agreed monthly instalments. Should you miss a payment, your guarantor will then be responsible for paying.

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

» COMPARE: Guarantor loans

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 tension between you and your guarantor.
  • Failing to make payments could damage both yours and your guarantor’s credit score.
  • Interest rates can be higher than other unsecured personal loans, but this depends on your credit score.

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 have sufficient income, you can apply for guarantor car finance and get on the road. Lenders will set their own requirements so check you meet their eligibility criteria before applying.

If you can get car finance on your own, without a guarantor, this could give you better rates so may be a better option. Guarantor car finance is designed for those with poor credit scores or drivers with limited credit history who may struggle to get finance on their own.

Guarantor car finance may also be an option if you don’t have a regular income, such as if you’re self-employed or work on a zero hours contract. Lenders may be reluctant to approve applications from these individuals as they consider them a higher risk, so having a guarantor could improve their chances of approval.

» MORE: Car finance options for people with bad credit

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, anyone can be a guarantor as long as the guarantor and borrower trust each other and both are happy with the arrangement.

Bear in mind that the guarantor’s finances will need to be separate from the borrower’s, so a partner with a joint account with the borrower wouldn’t be eligible.

The guarantor should have sufficient income to prove their affordability to act as guarantor, as well as a good credit history with a record of making payments on time. Some lenders may also require a guarantor to be a homeowner.

If you are looking into becoming a guarantor you’ll have to be prepared and willing to make payments on behalf of the borrower should they miss any. Guarantors should trust the borrower to make every effort to make payments on time. Because of the impact guarantor finance can have on both the borrower’s and the guarantor’s credit scores, agreements shouldn’t be entered into lightly.

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.

» MORE: What to consider if you are thinking of becoming a guarantor

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 one of the other types of car 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 could be a more affordable option.

Specialist car finance providers can offer finance to people with bad credit, without needing a guarantor, but check the interest rates as they are likely to be relatively high.

If your credit score is not good enough right now and you can afford to delay your car purchase, you could wait before applying for car finance. By giving yourself some time to build up and improve your credit history, you may become eligible for car finance without the help of a guarantor.

» COMPARE: Car finance deals

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in personal finance and insurance guides for consumers. Read more

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