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What is guarantor car finance?

  • Gives young people a helping hand
  • If you don't pay your bill, your guarantor will
  • Not applicable with some types of finance 

If you're reading this, you're probably a young person who hasn't had the chance to build up much of a credit rating yet.

While not the be all and end all of finance, your credit rating affects how lenders see you. The worse your credit rating, the less likely a lender will be to lend you money.

If you're young and haven't borrowed much money, chances are your credit score won't be brilliant. This matters because the better interest rates are also given to people with good credit scores.

Guarantor car finance in dealership

Guarantor car finance helps young people get behind the wheel of a safe and economical new or used car.

And while the allure of a shiny new BMW 1 Series or Audi A1 is strong, you should ask yourself the big question: 'Can you really afford the monthly payment, and to afford to pay it every month?'.

Remember: there's no point in getting guarantor car finance if you'll only be able to make every other payment, or if the payment will negatively impact other areas of your life.


What is guarantor car finance?

Guarantor car finance works by adding a guarantor, a friend or family member with a better credit score, to the agreement.

This person becomes responsible for your loan if you miss a payment.

Applicants must be 18.

Bad credit car finance: can a guarantor help?

With this guarantor on board, lenders are more likely to lend you money because the risk level (e.g. the risk of the lender not being repaid) has been reduced.

This type of finance is designed for young people who don't have much of a credit score, rather than people who have a poor credit rating because of previously not repaying credit.

What happens if you stop paying guarantor finance?

The Financial Conduct Authority (FCA), the authority for the financial markets in the UK, state that 'many' guarantors make at least one loan repayment, and that the proportion of guarantors making payments is growing.

As more people overstretch themselves with guarantor loans, ask yourself how much you can you afford to spend, and stick to it.

If you stop paying your monthly figure, your lender will most likely contact you first to see if there's been an error. If you don't pay your bill, your guarantor will incur the bill.

If you think you might not be able to make a payment, contact your lender. They may be able to make a special arrangement.

Word of warning: if you miss payments, it will reduce your credit score. This exasperates your problem of not having a good enough credit score to get credit in the first place.

If you continually miss payments, the car can be seized. You and your guarantor can be given a County Court Judgement (CCJ). If you don't pay this off within 30 days of receiving the judgment, it will be added to your credit record, where it will stay for six years.

Car finance deals:

Guarantor car finance: leasing

Young people with car

Leasing is essentially long-term car rental. There's an initial payment, a set number of fixed monthly instalments, and that's it. Once your contract is up you need to find another car.

This simplified form of finance is easy and usually offers the lowest monthly payments. Bad news; most leasing companies don't accept guarantor finance agreements.

Good news; leasing companies are still willing to accept people with less than perfect credit ratings. If you haven't had the chance to build up a credit rating, but at the same time, haven't done things to negatively affect your credit ratings (e.g. missing payments on loans) then you still have a chance of being accepted for leasing without a guarantor.

Guarantor car finance: PCP

PCP (Personal Contract Purchase) is the most widely used type of finance, and is available with a guarantor attached.

There's a deposit, followed by a set of fixed monthly instalments, then you have a choice. If you want to buy the car, you'll need to cough up an optional final payment, sometimes referred to as a balloon payment.

If you don't want to buy the car outright, you can simply return it. Sometimes the car's value is higher than was initially forecasted, so you essentially have equity in the car. This can be put towards a deposit on another car.

Guarantor car finance: no credit check

The likelihood of any finance company offering you finance without a credit check is practically zero.

But it's important to remember that some lenders do a soft check, while others do a hard check.

A soft credit check is recorded in your credit history, but can't be seen by lenders. So it doesn't affect your credit score.

A hard credit check can affect your credit score because they are usually related to an actual credit application and lenders can see it.

It varies from company to company, so before you do it, it's worth checking what type that company uses.

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