Car finance: who can be a guarantor?

Guarantor car finance can be a big help for those with no credit rating. Here’s what you need to know about who can be your guarantor

Sam Naylor
Jan 25, 2021

Even though it’s fairly straightforward to get a driving licence as a young person, purchasing your own car can be a tough process. There’s the insurance costs for a start, but there’s also another hurdle to cross - paying for the car. Since most people don't have cash to splash, in most cases this means the battle to get approved for car finance.

Luckily there’s a way for young drivers with no credit history to change their car and pay for it with monthly payments - you can use a guarantor. With guarantor car finance you can get a family member or friend with a good credit score to back you up so you can get approved, with the guarantor ready to cover the monthly payment if you fail to.

Unfortunately if you fail to meet the payments and the guarantor fails to pay, too, it will cause damage to both your credit score and that of the guarantor, which could end up costing you both more than you bargained for - so both parties will need to take guarantor car finance seriously.

Yet a guarantor loan needn’t be scary. It’s a great way for a young person to build up their own credit rating with a loan that they may not otherwise have been able to get.

You can read more about how guarantor finance works in our comprehensive guide. And if it sounds like guarantor car finance could work for you, read on to find out who can become a guarantor and how to do it.

Who can become a guarantor?

A guarantor is someone who provides assurance to a lender that the monthly bill will always be paid, by being ready to step in with the money if you fail to make the payment on time.

The person doesn’t have to be anyone special to become a guarantor - usually this role is taken on by family members such as parents, or by friends who are in a more comfortable financial situation.

However, there are a few things to bear in mind. The guarantor will need to be over 21 in most cases (or 18 for certain lenders) and have a good credit history of their own to become a guarantor, and of course they need to be financially stable so that they can always meet payments if the worst happens and you fall behind.

The credit history of the guarantor will be checked by the lender before the loan goes ahead, just like if the guarantor were the one taking out the finance. This usually means that the guarantor will have to be in full-time employment, and will also have to have a UK bank account in order to be a guarantor.

Some lenders may also only accept guarantors that are homeowners, although this isn’t always the case - some lenders are happy to accept guarantors that are renting, though the guarantor may have to prove they’re in a stable situation and have lived at the same address for some time.

What are the risks of becoming a guarantor?

The reason why most guarantors are close family or friends is that there are risks that come with it. There’s no money to pay as a guarantor unless the borrower misses a payment - but if you as the borrower do fall behind, the guarantor will be obliged to make payments for you.

If the guarantor isn’t able to make the payment, then in that case they are put in the same situation as you - so they can face the same penalties including being taken to court or having assets seized. This means that the guarantor absolutely must be ready and able to make a missed payment every month if you fall behind.

If you fail to make a payment, even if the guarantor steps in and makes the payment on time, this can be noted on both of your credit history, which could cause borrowing problems for both parties in future. It’s a good idea for you and the guarantor to stay in touch and for you to flag any issues early - it is a much better course of action if they can help you make a payment on time than to let it go unpaid and for them to have to step in as the guarantor.

Guarantors can’t opt out once they’re involved in a guarantor loan by signing on the dotted line, so they need to be sure they are ready to help you out no matter what. They may also be responsible for paying the rest of the loan back if you were to die, although both of you should check with individual lenders and read the terms and conditions before committing to anything.

Finally, you and the guarantor should think about how them being a guarantor for you could affect your relationship should something go wrong. If you are in a situation where a friend or relative has to pay a chunk of money for you and it’s damaged their credit rating, you will need to have a strong bond with the guarantor to avoid causing permanent damage to your relationship.

If they're not ready to step in and help no matter what, then they shouldn't agree to being a guarantor, but if you know each other well enough that they trust that you won’t put them in that position - or know that you can work out any issues, should they arise - then guarantor finance could be a good option.

 

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