Life is sweet when you’ve got a car. You can get around the city, into the country, out bush or you can even drive around Australia. But what happens when you don’t have the funds to purchase a car of your own?
One option for you is a guarantor car loan. They are accessible as long as you follow the right procedures and you have someone who can work as your guarantor.
What is a guarantor car loan?
If you can’t get a loan because your credit provider isn’t willing to give you a loan, then one option you might have is to ask if a guarantor car loan is available.
A guarantor of the loan is someone who is willing to put their name to the loan to be legally responsible for the payback of the entire loan – should you fail to make the repayments.
Who can act as my guarantor?
Usually a family member or a close friend can act as your guarantor.
Your guarantor must be aware of the responsibilities of being a loan guarantor when signing up, because they are legally in charge of the repayments of the loan.
The guarantor must also be aware that they are responsible for the payback of the loan before signing up for anything.
What are the responsibilities of a guarantor?
If you sign a guarantee for a friend or family member, you are legally responsible for the loan and the repayment of that loan. The money can be loaned out for a number of reasons, but no matter what that reason is, the guarantor is always held ultimately responsible.
As a guarantor, it is your responsibility to make sure the loan, interest, fees and charges are paid back in full. If the the loan can’t be paid for some reason, you can be called on to pay for the entire remaining sum of the loan.
As a guarantor, you should understand all the ins and outs of the loan. There are many things to check when volunteering as a guarantor:
- Are there set repayments?
- How much is the loan for?
- What will the loan be used for? A car? A business? A property?
- Why type of loan am I guaranteeing?
- Will this loan I’m guaranteeing impact my own personal credit rating?
Despite having this responsibility, as a guarantor you do not hold any right to own items bought with the loan.
What is a car loan?
A car loan is a personal loan of money that gives you the potential to pay off a car or any other vehicle for personal use over set term repayments. In short, the borrowed money is used to purchase a vehicle, either new or used.
What are the pros and cons of guarantor car loans?
Just like all personal finance decisions there are pros and cons to consider when you sign up for a guarantor car loan.
- You can gain a car loan without any or much credit history.
- You can acquire a car that you might not have been able to buy otherwise
- You can build credit history over time.
- Your relationship with your guarantor might be damaged if you have problems repaying the loan.
- If you can’t pay back the loan, the guarantor’s credit history may be damaged.
When considering these pros and cons, it is often worthwhile consulting with a lawyer to write out the finer points of a guarantor loan agreement. There are always traps with loans, so it is important that you don’t get caught up.
What happens if a guarantor changes their mind about the loan?
Whilst it is hard, it is possible for a guarantor to change their mind about the loaning situation. There are very strict circumstances that allow for the loan guarantor to jump ship and exit the loan.
Your guarantor can get out of the loan before you receive any money from the creditors, banks or financial institutions.
Similarly, the guarantor can get out of the loan before notice has been sent from the credit provider and received by the borrower acknowledging the acceptance of the loan.
The guarantor can also drop out if the finalised contract for the loan is different from the original document signed by the guarantor.
If you are a guarantor and you wish to get out of a guarantor loan, you need to seek legal and financial advice before proceeding with any matters.
What are the alternatives to a guarantor car loan?
One alternative to a guarantor car loan is to sign up for a co-borrower loan.
A co-borrower loan means the person who signs up as a co-borrower shares equal responsibility for the borrowed amount of money. A co-borrower is subject to the same financial and legal ramifications as the borrower in the event of any missed payments or default.
Co-borrowers, compared to guarantors, are each fully responsible for repaying a loan. A guarantor only pays off a loan when the borrower defaults.
How much can you borrow with a guarantor car loan?
The amount of money you can borrow will depend on your own financial situation and the financial situation of the person who is acting as your guarantor. Different lenders can have different criteria which can impact the loan you’re approved for. If you’re applying for a guarantor car loan you may be restricted to the single amount that is the value of the car.
Your personal income, credit history and employment status and situation will give lenders a good idea about your capacity and ability to manage your repayments, which will have an impact on the amount you can borrow.
What interest rates do you pay with guarantor car loan?
Each guarantor loan will include some form of interest rate. They will differ depending on the lending company, the amount of time you want to pay off the loan and the amount of money you want to borrow.
They are usually moderately priced interest rates and tend to include monthly fees of some sort.
Where can I get a guarantor car loan from?
Banks and major financial institutions will offer guarantor loans. Some of the big four banks offer them as well as smaller lending institutions.
It is always important to shop around and research all guarantor car loans on the market before you make your final decision.
How can I get a guarantor car loan?
Firstly, in Australia you must be over the age of 18 to get a loan from any bank. Secondly, you need to have a guarantor who is over the age of 18 and must be an Australian citizen.
Your guarantor must be able to prove they have a good financial record, including a good credit rating and are employed.
To apply for a guarantor loan, you will need to organise a chat with your broker or lender about the terms and conditions. You may need your guarantor present at these meetings.