In the market to buy a new car? Like something but now sure how to pay for it? This is where guarantor car finance comes in.
What is Guarantor Car Finance and how does it work?
Guarantor car finance or guarantor car loan is a kind of borrowing which may be ideal if you’re struggling to get a loan approved on your own. It’s a bit like other kinds of car finance in that you use the loan to split up the cost of a brand new or used car into monthly repayments.
However, unlike other car finance schemes, you need to get a third-party guarantor involved such as a friend, associate or family member, who can make the repayments in case you can’t or if you fall behind on them. There is a bit of a catch, however: the interest rates are usually higher.
Guarantor car finance is a great way to reduce the lender’s risk as well, because they would still be willing to offer the loan even if you don’t have a particularly strong credit score or no credit history at all.
So how does a guarantor loan work? It’s quite similar to a hire purchase loan – the cost of the monthly repayments are spread out over the course of a few monthly payments on which you pay interest. But unlike a typical car loan, you must appoint a third party that’s willing to act as the guarantor.
Guarantors are fully responsible for the loan and must agree to cover your repayments in case you fall short. When approved, the loan may even be paid directly to the guarantor at first, who will then pass it on to you, although you must make the repayments directly to the lender.
Since the guarantor must agree to step up in your place and make the repayments if you can’t, the lender will need several details from them along with specific documentation at the time of application – e.g. proof of income and proof of identity, to name a few. Additionally, guarantors are usually required to go through a hard credit check.
Can anyone be a guarantor and what kind of documents are needed?
It must be broadly understood that you can’t just ask anyone to be your guarantor. A ‘guarantor for car loan’ is a serious commitment, after all, as the person must make monthly repayments on your behalf in case you can’t. How soon they make these repayments can affect their credit score. So, it’s understandable that you’d always want to appoint guarantors who are from your family or close circle of friends – someone you can truly trust and rely on.
Now, when we talk about lenders, all of them have their own unique criteria for guarantor car loans. With that said, you must appoint someone between 18 and 75 years old who has a good credit score. However, many guarantors want guarantors to be at least 21 years old and a homeowner, and they must be someone with whom you don’t have any existing financial links.
As for the documents needed to appoint a guarantor, this can vary from lender to lender. However, both you and your guarantor need to provide your full name and address, including your contact details, and must undergo a credit check.
In addition, you may need to submit:
- Proof of income like bank statements or payslips from the last three months
- Proof of address through a utility bill or Council Tax
- Proof of ID like a driver’s license or government-issued passport
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How do I know if I qualify for Guarantor Car Finance?
If this is your first time taking out a guarantor car loan then it can be confusing to know who qualifies.
Guarantor car finance across the UK is typically an option for people who are either young drivers with no existing credit history or a bad credit history. It all comes down to risk.
Lenders decide whether they want to approve your application or not based on a number of factors, one of which is your credit score. If there’s an existing history of you missing payments in the past or not taking out credit before, the lender may have a tough time gauging what kind of borrower you potentially are. Naturally, this will shake their confidence a bit as they won’t know for sure if you can make the repayments on time.
On the other hand, if the car loan can be ‘guaranteed’ by someone who does have a good credit score, the lender feels reassured and confident in the fact that they will receive the repayments on time – if not from you, then certainly from the guarantor.
Guarantor car finance is also a great option for self-employed individuals who are on variable income streams and generally find it difficult to commit to regular loan repayments.
Here’s what you need to get started on a Guarantor Car Finance
Depending on your personal circumstances, a guarantor car loan may be perfect to get that car you’ve wanted so badly. All you need to do is have a few documents ready, although the exact requirements may change a bit depending on the lender you choose. Typically, you’ll need:
- Full name and contact information
- Current address and home address history for the last three years
- Current employment and previous employment history
- Proof of ID
- Proof of address
- Proof of income
And, of course, you must find a suitable person who agrees to be your guarantor, understands fully what kind of responsibility they are undertaking, and meet the eligibility criteria specified by the lender.
If you’re a young driver who’s eager to get their first car, please note that you need to be at least 18 years old before you can apply for a car guarantor loan.
We’re here to help
Liber Financial can help you determine eligibility and make the entire process really easy for you. Call us now to explore a variety of car financing options: 0330 174 8540
