How Does Guarantor Car Finance Work? Our Guide

If you are in the market for a car, new or used, there is a good chance you are thinking about guarantor car finance. Or just car finance in general. However, if you have a bad credit history, you might have discovered that getting finance for a car isn’t so easy. 

Thankfully, the door isn’t completely closed. And through a guarantor car finance deal, you can still enjoy that new car smell with bad credit history.

What Is Guarantor Car Finance?

In short, guarantor car finance is a way for people with bad or no credit history to borrow money for a new or used car. For someone to borrow money in this way, a guarantor is required to safeguard the lending company should the loan fail to be repaid.

If the person taking out the loan cannot continue making the payments, the debt falls to the guarantor. 

For this reason, your guarantor should be someone you trust, but equally, they should have plenty of trust in you.

How Guarantors Work On Car Finance

Guarantor finance works much in the same way as regular finance options. You can drive a new or used car through this option. But you won’t own your vehicle outright until the repayments have been completed.

Once you get to the end of your loan agreement, you can opt to buy the car if there is anything left outstanding. Or trade it in and start a new agreement.

The only real difference between regular and guarantor car finance plans is the inclusion of a third-party. 

That guarantor is there for the benefit of the lending company. Acting as a safety net in case the original lender runs into financial trouble.

Do I Need A Guarantor For Car Finance?

You might be asking yourself ‘How can I get car finance without a guarantor?’, but not everyone who is looking for a new or used vehicle requires guarantor car finance. The two main types of people who typically use guarantor car finance are young people and those with bad credit history.

Young people haven’t had the opportunity to build up a good credit rating. So they are viewed as a potential risk for lenders. However, a guarantor car finance deal means young people don’t have to miss out on having a car they like because of a lack of financial history.

For people with bad credit, a guarantor for car loans gives them the opportunity to be like everyone else and treat themselves to a new set of wheels. This means that someone doesn’t have to miss out on their dream car if their credit rating isn’t the best.

In fact, if you find yourself with a poor credit rating, there may not be many more finance options out there other than using a guarantor. 

Having a guarantor for car loans opens the door to getting deals, but there are other options. Some lenders have specific agreements in place for people with bad credit ratings. 

How Can FairSquare Help?

Thanks to being an independent dealer, we at FairSquare have arrangements with a variety of lenders who often cater to those with bad credit history.

Another way to get car finance without using a guarantor is to slowly build up a good credit rating over time. Of course, you may not want to wait for months or years before you are in a position to get a new car. But financially it is worth it if you can wait.

Having a good credit history often entitles you to better interest rates on borrowing while more lenders will be open to accepting you.

How To Find A Guarantor?

Practically anyone can become a guarantor, there just has to be a level of trust between them and the person taking out the loan. If you are looking for a candidate in your life, there are a few things to consider.

Most guarantors will only be accepted if they are older than 21. Although some companies will accept people over the age of 18.

Whoever your guarantor is, they will typically require a good credit history and a history of making regular repayments. Some lenders will require a guarantor to be a homeowner. So someone who consistently pays their mortgage on time would be a good candidate.

As many people using guarantor car finance are young, parents are often chosen as the person to step in and take the reins should their child be unable to pay.

However, it’s not just parents who become guarantors. With many aunts, uncles, grandparents, siblings, and even friends getting in on the act. The best guarantor will typically be someone you trust and who trusts you back.

What Are The Pros And Cons Of Having a Guarantor?

As with most things in life, there are ups and downs to arranging a guarantor car finance deal. 

The benefit of having a third-party act as guarantor is the good credit rating that comes with them. You will be more likely to get a better finance plan through this method than if you went it alone. 

It means you might even find a more expensive car. Many people find it impossible to get car finance with bad credit history. So a guarantor can use their good credit history for your benefit.

Guarantor car finance can also help those who are self-employed or on zero-hour contracts borrow money they otherwise wouldn’t qualify for. 

If you continue to make your repayments on your guarantor car finance deal your own credit rating will begin to improve too.

The cons of a guarantor car finance arrangement are largely for the person taking the risk. The debt becomes theirs, which can often lead to tensions in the relationship.

Advice For Potential Guarantors

We would advise anyone thinking of becoming a guarantor to make sure they can afford the repayments before signing anything. While you may trust the other person, should the worst happen, you need to know that you can afford to take the responsibility on your shoulders.

Before agreeing to anything, you should check that your own credit history is in good shape. Because if neither party can afford the repayments, both histories will suffer.

Many feel the responsibility of becoming a guarantor is too risky. Particularly because most of the time the agreement is helping someone with bad credit history. 

Even if you fall out with that person over the loan, you still have to make the repayments through guarantor car finance.

These are all things to remember when you’re thinking about guarantor car finance. We hope that you found this article useful!

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Legal disclaimer: FairSquare Europe Limited is a company incorporated in England & Wales (Reg No: 08023305). and having its Registered office address at 3 Brindley Place, Birmingham, B1 2JB. FairSquare Europe Limited is authorised and regulated by the Financial Conduct Authority for credit-related regulated activities, Firm Reference Number 715086

We act as a credit broker not a lender. Fairsquare shall act independently in sourcing credit from our panel of funders.

As a credit intermediary, we maintain a panel of Lenders who are reputable and experienced in the motor finance industry and consumer credit sector and offer products and services to suit a variety of credit strengths.

FairSquare is committed to ensuring that applications for credit to finance your car are placed with the most appropriate funder for a transaction. As we act as a credit broker, we will receive a fixed commission for introducing you to a finance provider, any such amount a lender pays us will not affect the interest rate you pay under your finance agreement, all of which are set by the lender concerned.

Finance is subject to status. Applicants must be 18 or over.