Guarantor car finance – how does it work?
Guarantor car finance allows you to add another person to your finance agreement who will be responsible for your debt if you fail to pay
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Car finance with a guarantor is a handy option for those with poor credit history who still want to get a car on finance, as the lender will usually be more likely to approve the application with the added security of a guarantor.
You can think of your guarantor as a kind of safety net – making sure your debt is handled if you can’t keep on top of it.
Here at cinch, our finance providers don’t usually offer the option of guarantor car finance – it's actually not that common in recent years.
How does a guarantor work for car finance?
If you plan on using a guarantor for your car finance, all other parts of the process will be the same. You can choose from a Hire Purchase (HP) or Personal Contract Purchase (PCP) car finance loan, and will pay the finance on a monthly basis.
Adding a guarantor to your car finance just means that you’ll be giving the car finance company some extra security if you don’t keep on top of your payments.
It’ll know that the guarantor will be responsible for the debt if you don’t pay, so they’ll usually feel less apprehensive about approving the loan.
Even if you don’t pay your car finance on time or miss payments, seeking payment from your guarantor will be a last step and finance providers will usually prefer to speak with you and work out a plan to get you back on track.
It’s the same with repossessing the car – finance companies are always looking for a positive fix before they take these steps.
Can I get car finance with a guarantor?
You can apply for car finance with a guarantor if you don’t have the best credit history, but it will be up to the finance company to decide whether you’re eligible.
Guarantor car finance isn't that common in recent years, so you’ll need to do your research to find a lender that offers this.
You might also consider putting a larger deposit down on your car finance, or accepting higher interest rates.
Paying car finance correctly and on time is a good way to improve your credit score in the long run, so you may be able to get a more competitive rate next time.
Why is a guarantor a good idea for car finance?
A guarantor can be a good idea for car finance if you might struggle to get accepted by yourself. If you have a poor or incomplete credit history, lenders might not want to offer you the loan and will see the guarantor as a way to reduce the risk.
Can anyone be a guarantor for car finance?
This will usually depend on the finance company, but there are many things that make a person a good option for a guarantor. These include:
Having a good credit rating and credit history, so they can prove that they repay all of their own debts.
They must be over the age of 21 for most lenders, while some will accept anyone over the age of 18.
Being a homeowner is usually a sign of a good guarantor, especially if they keep on top of their mortgage payments.
The person should be a close friend or family member – you want this to be somebody you trust and who understands the associated risks, and would be happy to pay the loan if you were unable to.
Who might need a car finance guarantor?
If you’re somebody who might find it hard to get approved for car finance by yourself, a guarantor could increase your chances.
You might struggle to get approved for finance if you’re a young driver with little or no credit history, or have a poor credit rating.
The good thing is you’ll usually see your credit rating increase if you successfully pay off your car finance and keep on top of your payments.
This means you might not need a guarantor in the future and will be more attractive to lenders.
What will happen if I don’t keep up with my car finance payments?
If you have a guarantor and don’t keep up with your car finance payments, the debt will eventually be the responsibility of your guarantor.
Your car finance provider will usually be reasonable and give you chance to explain your situation, but your guarantor will be there as extra security if you do struggle to pay.
Being a guarantor for car finance
If you’re choosing to be a guarantor for somebody else, you’re accepting responsibility for a debt if it doesn’t get paid.
What are the risks of being a finance guarantor?
There’s a chance that your credit score could be negatively affected as you’re financially linking yourself with somebody who has poor credit.
If you can’t afford to make the repayments if the debt does fall to you, it will likely damage your credit as well.
It’s also worth noting that you’ll still be responsible even if you no longer associate with the other person.
You might also have a relationship turn sour if you do end up paying off their debt – you'll need to weigh up if it’s worth the risk.
Does it affect your credit score to be a guarantor?
Being added as a guarantor to somebody else’s car finance may affect your credit score, as the finance application will usually involve a hard credit search.
Next time you apply for credit, you will be linked with another person financially who will likely have poor credit – if that’s the reason they needed you as guarantor. This could reflect negatively on your own credit rating.
You might also see your credit report negatively affected if the responsibility for the debt falls to you and you can’t make the repayments.
Having unpaid debt on your credit history will likely make you less attractive to future lenders.