Buying a Car With a Guarantor Loan
If you’re intent on buying a new or used car, but haven’t been able to find a company willing to lend you the money by way of a standard PCP, HP or PCH finance agreement then a guarantor loan could be your saving grace.
Aimed specifically at individuals who have been unable to obtain finance through high street banks and specialist lenders, guarantor car finance
What is a guarantor loan?
Guarantor loans are essentially personal loans that can be used to purchase not just a car, but pretty much anything. It’s differentiated from a standard loan by the fact that it requires a third party to guarantee the repayments on your behalf.
Essentially, this means that if you (the borrower) are ever unable to manage the repayments as a result of financial hardship or simply a change in circumstances, your guarantor will be expected to pay on your behalf. In this scenario it is then down to your guarantor to recover the money from you.
Who is a guarantor loan suitable for?
A guarantor loan may be suitable for anyone who has been declined a car loan with a high street bank or mainstream lender, provided they have the means to make a series of monthly repayments.
However, there are some exceptions. For example: if you are currently entering into or are mid-way through bankruptcy proceedings it would be somewhat reckless to enter into a new financial agreement.
How does it works?
The process of applying for a loan, getting approved and subsequently receiving the loan amount and using it to buy a car is pretty straightforward provided you are clued up on how things work.
Here’s a run down of how things usually pan out:
1. Find a guarantor – Given the nature of guarantor loans it can prove hard to find someone able and willing to fulfill the role of a guarantor. Complicating things further is the fact that a guarantor may not be financially linked to you. This will therefore likely rule out the possibility of your long-term civil or marital partner taking on the role.
However, a guarantor can still be a family member or even a close friend, but in most cases they will need to have a reasonable credit rating and some guarantor loan providers may even dictate that they must be a home owner, which in the eyes of the lender is likely to further reduce the risk of lending.
2. Apply online – Once you have found a guarantor who is aware of the risks and responsibilities involved, it is time to submit your application for a loan. This process is fairly straight forward, but can vary depending on the lender you choose.
In most cases you will need to provide your name, date-of-birth, address history for a minimum of five years, details of your employment and salary. Most lenders are also likely to go through an income and expenditure assessment so you will also need details of all your bills and how much you spend.
Last, but not least, you will most likely need all the same details for your guarantor, but you must have their permission before providing these to the lender and in most, if not all cases, the lender will need to speak directly to the guarantor as part of the application process.
3. Get your decision and receive the funds – Once you have been given your decision and provided it is a positive one, both yourself and your guarantor will be required to sign and return the paperwork. Once this has been received back by the lender, they will begin the process of authorizing and transferring the loan amount.
With some lenders the loan is transferred directly to the guarantor and it is then up to them to pass to the fund on to you or to oversee how the funds are spent and subsequently transfer them straight to the dealer who is selling the car that you intent to buy.
4. Choose a car – Choosing a car is perhaps the easiest part of the process, by the time you reach this stage you will have a clear idea of how much you are able to borrow and this will therefore dictate your budget and subsequently the selection of cars that you are able to choose from.
Here are three popular places where you can find and buy a car:
1. Classified websites – If you can’t fine your ideal car on a car classified website then it probably doesn’t exist. Some of the biggest sites have in excess of 400,000 new and used cars listed by both dealerships and private individuals.
However, if you’re not internet savvy or you’d rather go browse through physical cars rather the virtual images of cars then you might be a bigger fan of one of the two following options.
2. Local dealerships – Buying a car from a manufacturer approved dealership is perhaps the best way to ensure you drive away with a quality car that isn’t likely to turn into a mechanical and financial nightmare, otherwise known as a lemon.
When buying from a manufacturer approved dealership, the chances are the car has undergone a pre sale inspection and had a full HPI check in order to ensure it hasen’t been stolen, written off and doesn’t have outstanding finance. You may also be eligible for some kind of warranty.
3. Car auctions – Car auctions can be the perfect place to pick up a bargains. However, the chances are a lot of the cars that pass through the auction will have damage or mechanical faults of some kind. After all, auctions are essentially where dealerships dispose of cars that aren’t in good enough condition to retail.