Going guarantor: the good, the bad and the ugly

Going guarantor the good, the bad and the ugly

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a parent, relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These people may include people with bad credit, students and young people who may have no credit history, and some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

Getting a loan with a guarantor

Getting a guarantor loan can be helpful for both increasing your chances of being accepted for a loan and potentially enabling you to secure a lower rate than you would have otherwise been offered, based on your circumstances, such as having bad credit history or no credit score. 

To be accepted as a guarantor the third party must be someone with very good/excellent credit. They may have to put an asset of theirs against the loan, such as their car or home equity.

It is important for both parties to really consider the risks involved before signing the dotted line of a guarantor car loan. These will be:

  • What is your financial situation like?
  • How secure is your current income?
  • Are you likely to default on the loan?
  • How much will the guarantor be required to repay if you default?
  • How will this repayment impact the guarantor’s ability to service their existing financial commitments?
  • Will your relationship be affected if the situation sours?

Where can I get a guarantor car loan?

There are multiple lenders who are willing to provide loans secured by guarantors. If someone is willing to go guarantor for you and they meet the requirements set out by lenders, you can apply for guarantor finance online, over the phone, or in person.

Do banks do guarantor loans?

Yes, some banks will be willing to provide guarantor loans, including Commonwealth Bank, NAB, Westpac and ANZ. You ought to bear in mind though that these larger banks, because of their monopoly of the market, tend to have higher interest rates than the smaller lenders.

Smaller loan companies and credit unions tend to be more competitive in their battle for your business. There are plenty of lenders willing to lend to people with bad credit or no credit history who have willing guarantors.  

Pros and cons of guarantor loans

Pros

 

  • You are more likely to be approved for a loan with a guarantor if you have bad credit or no credit.
  • You may be more likely to be able to secure a car loan with a lower interest rate.
  • You may be more inclined to meet your repayments, because an important relationship may be at risk.
Cons
  • You may find that you have taken out a loan that you cannot afford, because you were accepted on the grounds of a guarantor.
  • If you default on your loan and don’t meet your repayments, you could potentially ruin your relationship.

 

     

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    Learn more about car loans

    What is a guarantor on a car loan?

    A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

    Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

    Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

    Where can I get a student car loan?

    Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

    A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

    Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

    To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

    Who can be a guarantor on a car loan?

    While a guarantor for a car loan is often a parent or relative, to be accepted as a guarantor, that third party must be someone with very good or excellent credit. They may have to put an asset of theirs against the loan as collateral, such as their car or home equity.

    It’s important for both parties to really consider the risks involved before signing the dotted line of a guarantor car loan, including:

    • What is your financial situation like?
    • How secure is your current income?
    • Are you likely to default on the loan?
    • How much will the guarantor be required to repay if you default?
    • How will this repayment impact the guarantor’s ability to service their existing financial commitments?
    • Will your relationship be affected if the situation sours?

    Ensuring you can answer these questions will help you and your potential guarantor decide whether a guarantor car loan is right for you.

    What is a guarantor car loan?

    A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

    Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

    What are the pros and cons of guarantor car loans?

    Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

    Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

    However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

    Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

    What is the role of a guarantor on a car loan?

    The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

    Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

    Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

    Where can I get a guarantor car loan?

    There are multiple lenders who are willing to provide loans secured by guarantors.

    If someone is willing to go guarantor for you and they meet the requirements set out by lenders, you can apply for guarantor finance online, over the phone, or in person.

    Some banks also provide guarantor car loans, though because they’re larger banks, they may have higher interest rates than smaller lenders.

    You may want to compare guarantor car loans at RateCity, and find a guarantor car loan ideal for your purposes.

    Do banks do guarantor car loans?

    Yes, some banks will be willing to provide guarantor loans, including Commonwealth Bank, NAB, Westpac and ANZ, though the terms for signing up to a banker-issued guarantor car loan may not necessarily be as good as another lender.

    You should keep in mind though that these larger banks, because of their monopoly of the market, tend to have higher interest rates than the smaller lenders.

    In comparison, smaller loan companies and credit unions tend to be more competitive in their battle for your business. There are plenty of lenders willing to lend to people with bad credit or no credit history who have willing guarantors.

    Can I get a car loan with bad credit?

    Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

    You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

    If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

    Does having a guarantor on a car loan lower your interest rate?

    While it’s not necessarily a guarantee, having a guarantor on your car loan will improve your chances of having your application accepted, and may mean that you are able to attain a lower interest rate loan.

    Having a guarantor with excellent credit history and/or is a property owner reduces the risk to the lender because the payments are guaranteed by someone who is considered to be financially secure and reliable.

    As such, even if your credit history isn’t perfect, a guarantor may be able to help you secure a lower rate from some lenders.

    Who can go guarantor for me on a car loan?

     

    Anyone who knows your circumstances and trusts you to meet your repayments is someone who could potentially go guarantor for you on a car loan, providing that they have an excellent credit history and/or are a home owner.

    Parents are the most likely to be accepted by lenders as guarantors, but immediate family such as grandparents, adult children, siblings and de facto partners are also accepted. If you want a friend of colleague to go guarantor for you it is possible but may require a specialist lender and may incur a premium fee.

    Can I get a no credit check car loan?

    You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.

    Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.

    That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.

    Can I get a car loan with poor credit?

    Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

    In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

    However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

    Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

    Who provides bad credit car loans?

    Lenders that provide bad credit car loans tend to be smaller challenger lenders rather than the bigger banks.

    Bad credit car loans are a niche product. The bigger banks tend to focus on mainstream car loan finance for borrowers with better credit histories. That’s why smaller lenders tend to be the ones that provide bad credit car loans.

    Bad credit car loans can have high interest rates and fees, so it’s important to compare options before submitting an application.