Guarantor auto financing may be an option if you have a poor credit score or a limited credit history. If this is the case, you may find it difficult to get approved for traditional auto finance transactions. Using a guarantor is one solution to this as it increases your chances of securing financing on a car.
The guarantor is the third party responsible for paying the payments in your auto finance transaction if you are insolvent. This means lenders have a backup plan if you are unable to make the payments and provides lenders with more security so they are more likely to lend.
As with regular auto financing, you can apply Buy Personal Contracts (PCPs) or Hire Purchase (HP) agreement with the guarantor. A guarantor PCP will have a lower monthly payment as some costs are deferred until the end of the agreement, where you will have to pay an optional final payment to keep the vehicle. HP breaks down the total cost of the car, including interest, over the term, and you automatically own the car at the end of the day.
When deciding which car financing option to choose, consider the monthly payments you can afford and whether you want to own your car at the end of the contract. If you choose PCP, you can return the vehicle at the end of the agreement without any additional fees as long as you are within the terms of the agreement and the vehicle is undamaged.
Should you get a car finance guarantor?
Financing a guarantee can be a good option if you are a young driver and have little or no credit history. This type of financing will increase your chances of getting a better car, and by making all your payments on time and completing the contract, it will improve your credit rating. The main barrier is finding someone with a good credit history and willing to act as your guarantor, usually a family member or close friend.
The same applies if you have poor credit, this type of financing is a good way to build your credit score and improve your chances of being approved for future financing. Guarantor finances can also benefit you if you are self-employed, work on a part-time contract or have an occasional income as having an extra sponsor will make your financial company better. Lending less risky. Additionally, you may be approved for a limited amount of financing, and adding a guarantor can increase the amount a lender is willing to offer you.
Should you be the guarantor?
Being the guarantor of an auto financing deal comes with risks, so you should be aware of the implications of an agreement like this before proceeding. First, only agree to be someone’s guarantor if you trust them and believe that they will be able to steadily repay the amount of the transaction. Your role is to make these payments if the applicant cannot, so you must also ensure that you yourself can make the payments in the event of an emergency.
It is essential that you trust the applicant as the debt may become your responsibility and even if your relationship falls apart, you will still have to pay. If both of you are unable to pay this will affect your credit score, the car will be repossessed and you both could face District Court Judgments (CCJs).
Once you are comfortable with the idea of becoming a sponsor, you must meet certain requirements to ensure you are eligible to act as a sponsor. You must prepare a credit score check to make sure that you have a good credit rating and a reliable credit history. Guarantors are more likely to be approved if you own a home or have lived in the same residence for a long time, which is one way to demonstrate to lenders that you have the ability to keep up. payments.
Some lenders will accept underwriters over the age of 18 but for others the minimum age is 21, so check if you are old enough for that particular lender before setting your own. continue. To become a sponsor, you are not directly connected financially with the applicant, so if you are their spouse or business partner you will not be eligible.
However, if you are not financially connected, becoming an applicant’s guarantor will link you financially and this can have a negative impact on your own credit rating. . Once you agree to be the guarantor, you remain in this role until the end of the agreement unless the financing is paid in full by the closing date.
As with all financial agreements, make sure that you and the applicant understand all of the terms and conditions before signing a contract.