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Guarantor Car Finance

More than nine out of ten new cars in the UK are bought on finance these days. But if you have poor or little credit history, you might struggle to be approved for most car finance arrangements. This will be a particular concern for young people or others applying for car finance for the first time.

These motorists might want to consider a car loan with a guarantor. A guarantor is a third party - usually a family member or close friend - who can also be financially responsible for the repayments. The presence of a guarantor can allow people who would otherwise be rejected for car finance to obtain a loan and get behind the wheel of their own vehicle.

In this guide:

How does guarantor car finance work?

When you apply for car finance, the provider will run certain checks on you. These will include examining your credit history and interrogating your finances to ensure you’re both responsible with credit and can afford the repayments. If you have poor credit history because you’ve previously missed loan repayments or defaulted on loans, or if you have little credit history as many young people do, providers may reject your application.

You’re not out of luck, however. Thousands of young drivers and those with spotty credit history obtain car finance deals every year by using guarantors.

Typically, these drivers take out personal loans with a guarantor, which they then use to fund a car purchase. Usually, you can’t obtain a standard HP or PCP car finance arrangement with a guarantor.

A guarantor is a third party who guarantees the repayment of the loan in the event you miss payments or default. A guarantor is typically a family member or close friend of the borrower and will themselves have to meet eligibility requirements. They also must be aware that they’re taking on a significant financial responsibility and will be required to make the loan payments if you fail to do so.

Typically, with personal loans used for car finance, the loan will be dispersed to the guarantor. The guarantor will then give it to the borrower to fund their car purchase.

Who can be a guarantor for your car loan?

A guarantor is usually a family member or close friend of the borrower. However, spouses or others who are directly financially connected to you are generally not eligible to serve as your guarantor.

Guarantors typically must be over the age of 21, or sometimes 18. They must have a good credit rating, showing a strong history of making timely and correct repayments on loans. In many cases, guarantors for car finance need to own their own home. However, sometimes car finance providers will accept tenants who have lived at the same address for many years and have excellent credit histories.

As part of the application process, guarantors, along with the borrower, must provide information about themselves and their financial situation. This may include bank details, statements, and some form of ID.

If you’re asked to be a guarantor for car financing, carefully consider whether you can trust the borrower to make the repayments. You also must consider whether you can afford to pay them if the borrower fails to do so. Both the borrower and the guarantor can face legal action - and significant damage to their credit scores - if they default on the loan.

Who can benefit from guarantor car finance?

Guarantor car finance is ideal for motorists who may otherwise struggle to be approved for a car loan. This may include young drivers, who haven’t had time to build up a credit history. It may also include those with poor credit scores and histories of missing payments and defaulting on loans.

Lenders will also examine other information about your financial situation. If you’re self-employed, on a zero-hours contract, or don’t have a regular income, you may also struggle to be approved without a guarantor.

Even if you do qualify yourself for car finance, a guarantor may allow you to borrow more money than you would be able to on your own. This will then allow you to purchase a larger or better vehicle - provided, of course, you can comfortably afford the repayments.

Consistent repayments on your guarantor car loan can help you to build your credit history. Therefore, you may qualify for car finance deals and other loans, including mortgages, on your own in the future.