Guarantor car finance: Is it the right option?
Guarantor car finance is a way for people with a poor credit history to get car finance.
It relies on a trusted person – a guarantor – to make sure that you meet your repayments. If you can’t pay, the debt falls to them.
Confused.com doesn’t compare guarantor car finance. This guide is for your information only. But we do compare car finance for people with bad credit, which may be another option for you.
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How does guarantor car finance work?
Guarantor car finance works in much the same way as a regular car finance agreement.
You get the car, but you don't own it yet. You make monthly repayments until the end of the agreement and then it's yours.
The only difference is the presence of a third party - the guarantor.
The guarantor is a safety net. If you miss a payment, the debt falls to them.
Who might need guarantor car finance?
There are two main types of people who might go for guarantor car finance:
Young drivers with little credit history.
This would help them afford a car and helps build their credit rating.
Someone with a poor credit rating.
Having a guarantor allows them to get a more expensive car or a more favourable agreement.
READ MORE: Car finance for young drivers
Why could guarantor car finance be a good option?
You have someone with a good rating to guarantee that the payments will be made. This means you could get a better finance deal than if you struck out on your own.
If you have a poor credit rating, you might have trouble getting a finance deal full stop. Having a guarantor might open a few doors for you here too.
Who can be a guarantor?
The specifics vary between lenders, but in general they look for:
Someone with a good credit rating
Someone with a good history of making regular repayments eg a mortgage
Usually a close friend or family member – someone you trust and who trusts you
Someone over 21 – some lenders may be okay if they're over 18
Some lenders may need them to be a homeowner.
Advice for the guarantor
Be sure you can afford the repayments if the other person can’t pay.
Make sure you trust the person you’re acting as guarantor for. If they decide to stop paying, they could leave you in the lurch.
Check that your credit history is in good shape before agreeing to anything.
What are the risks of being a guarantor?
Many people think that guarantor car finance is too risky. You're choosing to have a financial association with someone who has bad credit. If things go bad, it will affect both of you:
If neither of you can afford the repayments, both of your credit ratings could suffer.
You’re still responsible for the debt no matter what happens. If your relationship sours, you must still make the payments.
READ MORE: Car finance traps to avoid
Is there an alternative to guarantor car finance?
If you have a poor credit rating, you might not be able to get many good finance deals on your own. But there are alternative options out there.
Some lenders have agreements tailored to people with poor credit history. The rates may not be as good as those with a guarantor, but they could be better than a standard finance agreement.
If this sounds like it could work for you, you can compare quotes for bad credit car finance.
You could also try building your credit rating before taking the plunge with a finance deal.
READ MORE: How to improve your credit rating