Looking for a car loan but don’t have the funds or credit history to get one? Having a family member or a friend go guarantor on your loan may increase your odds for approval.  

What is a guarantor car loan?

A guarantor car loan is when a family member or a friend agrees to make repayments if the borrower defaults on the loan.  

Guarantor car loans can be useful for people who may struggle to get a car loan approved, such as those with bad credit, pensioners, students or young people with little to no credit history.  

There is less risk to the lender by having someone ‘back up’ a loan application. If you’re struggling to get approval for a car loan, you may want to consider finding a guarantor.  

What are the responsibilities of a guarantor?  

A guarantor’s role in a car loan is to be legally responsible for the full value of the loan, plus associated costs.  

It is the guarantor’s responsibility to make sure the loan, interest, fees and charges are made. Otherwise, the guarantor may be asked to pay for the remaining sum. If they cannot afford the debt, security - such as the car or other assets - may be seized by creditors to cover the lender’s losses 

There are many things to check before volunteering as a guarantor: 

  • What is the loan for? 
  • How much is the loan? 
  • How often will the borrower make repayments? (weekly/fortnightly/monthly)
  • Will this loan impact the guarantor’s credit rating? 

Guarantors do not hold any right to own the items bought with the loan.  

How do you know if you need a guarantor?

You might consider engaging a guarantor for your car loan if any of the following apply to you:

  • You are a young driver buying your first car.
  • You have no credit history.
  • You have a bad credit score.
  • You aren’t employed in a full-time, permanent position.
  • You are on a government pension.

Can I go guarantor for a car loan?

Anyone can apply to be someone else's guarantor, but it is typically done by a family member or a close friend. This is because it is a big responsibility to agree to take on someone else's debt if they can't pay it.

Keep in mind the guarantor's reliability as a borrower is tested, not just yours. The car loan lender may ask you and the guarantor to provide details such as credit scores, bank statements, proof of income and any current debts owing.

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 your guarantor's.

Different lenders have different criteria which can impact the loan you'e approved for. Your income, credit history and employment can paint a picture of how much you can afford to borrow and repay.

Use RateCity's car loan calculator to get an idea of how much you might be able to afford in repayments.

What happens if a guarantor changes their mind?

It’s a hard situation, but it is possible for your guarantor to change their mind. There are strict circumstances that allow for the loan guarantor to jump ship and exit the loan. 

Your guarantor is able to get out of the loan before you receive any money from the lender. They can also get out before notice has been sent from the lender accepting your application.  

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 should seek legal and financial advice before proceeding. 

What happens if you both cannot pay the loan? 

If you cannot pay back the car loan, the responsibility falls back onto the guarantor. However, in the event the guarantor can’t pay the loan debt, trouble can arise. 

The lender will be looking to pay off the debt you owe. If the car you bought acts as security on the loan, the lender will typically seize this asset. If your guarantor offered other security, that may also be seized. 

The lender may also involve debt collectors and a default could go on your credit history.  

Can anyone get a guarantor car loan? 

In Australia you must be over the age of 18 to get a car loan. If you want a guarantor loan your guarantor will need to be over 18 and an Australian citizen. 

Use comparison tools, such as tables and calculators, to compare guarantor loans. Look for competitive interest rates, features and fees when deciding on the right loan for you. Take a look at the lender’s criteria to see if you suit this. 

To apply for a guarantor loan you will need to organise a chat with your broker or the lender directly about the terms and conditions. You may need your guarantor present at these meetings. 

Finally, your guarantor must be able to prove they have a good financial record. This includes a good credit rating and being currently employed. This helps car loan lenders to see them as reliable borrowers.   

Will a guarantor car loan save you money? 

Yes. The benefit of a guarantor car loan is that you will be a less risky borrower to lenders. If you’re a student, apprentice or a young adult, you may not have much in the way of credit history, which is why you may want to partner with a guarantor. Lenders favour guarantors with high credit scores, positive credit history and stable employment/income. This means you may get a lower interest rate. As mentioned above, there is less risk to the lender if you have someone ‘back up’ a loan application. 

Further, if you do pay the loan off in full, this will reflect positively on your credit history. That means it may be easier to get financial products such as credit cards or a home loan in the future.  

What are the alternatives to a guarantor car loan? 

One alternative to a guarantor car loan is a co-borrower loan. 

A co-borrower loan is just a joint loan. This means the person who signs up as a co-borrower shares equal responsibility to pay off the loan. A co-borrower is subject to the same financial and legal ramifications as you in the event of any missed payments or default. 

Co-borrowers, compared to guarantors, are both responsible for repaying a loan. A guarantor only pays off a loan when the borrower defaults.