What is guarantor car finance?

Guarantor car finance is a type of borrowing that may be suitable for people who struggle to be approved for a loan on their own. It’s like other types of car finance in that you can use the loan to split the cost of a new or used car into manageable monthly repayments, but unlike those other types of car finance, there’s a third-party guarantor involved, and interest rates tend to be higher.

The guarantor, typically a close friend or family member, must agree to make the repayments on your behalf if you fall behind. This reduces the risk to the lender, as they know that the loan will probably be repaid, even if the borrower doesn’t have a strong credit score or any credit history at all.

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How does guarantor car finance work?

Guarantor car finance works similarly to a hire purchase loan; it spreads the cost of buying a new car into manageable monthly payments in return for interest. However, unlike a typical car finance loan, you’ll need to appoint a third party as your guarantor. Guarantors take responsibility for the loan and commit to covering your repayments if you can’t. If approved, your loan might be paid to the guarantor, who will then release it to you, but you’ll make your repayments directly to the lender instead.

As the guarantor will be required to step up and make the repayments if you fail to do so, the lender will likely ask them to supply several details and some documentation during the application process, such as proof of identity and proof of income. Guarantors also often need to undergo a hard credit check.

Who can be a guarantor?

Being a guarantor is a serious commitment; it could mean stepping in to make your monthly repayments and might even affect their credit score. That’s why it’s understandable that most guarantors are trusted friends, close colleagues, or family members.

When it comes to lenders, each has different requirements for guarantor loans. Even so, you’ll usually need to appoint someone between the age of 18 and 75 years old with a good credit score. Some lenders also require guarantors to be over 21 and a homeowner, and you often can’t have an existing financial link with them.

What documents will a guarantor need to provide for car finance?

The documents needed to apply for guarantor car loans can differ depending on the lender that’s considering your finance application. Typically, both you and your guarantor will need to supply your full name, address, and contact details, as well as undergo a credit check.

You might also need to submit:

  • Proof of income – such as three months’ payslips or bank statements
  • Proof of address – such as a Council Tax or utility bill
  • Proof of ID – such as a government-issued passport or driving licence

Who is eligible for guarantor car finance?

Guarantor car finance in the UK can be an option for people with bad credit or young drivers who have no credit history at all. It’s all about risk; lenders base their decisions on a variety of factors, including your credit score. If you’ve missed payments in the past or have never taken out credit before, the lender can find it difficult to know what type of borrower you might be and whether they can rely on you to make all your repayments on time.

If the loan is guaranteed by someone else who has a good credit score, it reassures the lender that the repayments will be made, if not by you, then by the third party.

Guarantor finance can also be an option for self-employed people on variable incomes who may find it difficult to commit to making regular loan repayments.

What happens if I can’t keep up with my loan repayments?

Personal circumstances can change over time and your future financial situation might not be the same as it was when you first signed your car finance agreement. If your income has reduced, your bills have increased, or you’re struggling to make repayments for any other reason, your guarantor will be expected to step in and pay them on your behalf. They’ll be responsible for the full loan amount – and if they don’t pay, it could harm their credit score.

However, it’s not all bad news! If you can keep up with your guarantor loan repayments throughout the term and your guarantor doesn’t need to step in, you might see your score increase as you’ve demonstrated you can be a reliable borrower. You might not even need to apply for guarantor car finance next time.

What do I need to apply for a guarantor car loan?

If you think that a guarantor car finance loan could be the best option for you, you’ll need to get a few documents prepared. The exact requirements might change depending on the lender that’s considering approving your loan, but you’ll usually need to supply:

  • Your full name and contact details
  • Your current address and three years’ address history
  • Your current employer and previous employment history
  • Proof of income
  • Proof of address
  • Proof of ID

You’ll also need to find a suitable person who is happy to act as your guarantor, understands exactly what the role entails, and meets the eligibility criteria set out by the lender.

Can I get car finance with bad credit and no guarantor?

If you’ve made late payments in the past, had a CCJ, or entered into an IVA, your credit score might have taken a hit. A bad credit score can make it more difficult to secure car finance, but it’s not impossible. In fact, you might be able to find a bad credit car finance loan without needing to appoint a guarantor. Some lenders specialise in providing car loans for people with poor credit ratings. However, if you are struggling to get approved and have been rejected elsewhere, appointing a guarantor with a strong credit score might improve your chances.

Guarantor car finance for young drivers

If you’ve recently passed your test and can’t wait to get on the road, you might also be looking to take out your first loan agreement. Unfortunately, while you can take your test and get a full UK driving licence at 17, you won’t be eligible for a car finance loan until you turn 18.

It can also be tough to secure finance if you haven’t had a loan before. This is simply because lenders can’t be sure how you’ll act as a borrower, thereby increasing your risk profile. That’s where guarantors can help; the benefit of guarantor loans for young drivers is that both you and your guarantor’s credit histories are considered before lenders make their final decision.

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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.

Disclaimer: All information and links are correct at the time of publishing.

Verity Hogan, Personal Finance Writer

Verity Hogan

Personal Finance Writer

Verity is a personal finance writer and journalist with over 13 years of experience working in a variety of industries, including 3 years specialising in motoring and debt. She contributes engaging, informative guides on everything you need to know on debt consolidation and car finance for Ocean.