If your credit is less than stellar – or you simply haven’t had the chance to build up your credit yet – it can be hard to get approved when it comes time to apply for a car loan.
So, what are your options?
While there are some lenders that specialise in offering car loans to bad credit borrowers and borrowers with no credit, those loans can come at a higher cost.
An alternative option could come in form of applying for a guarantor car loan.
Got questions? Don’t worry.
In this post, we’ll look at the various factors involved in applying for a guarantor car loan, including how guarantor car loans work, who can apply for them, and what to look for in a guarantor.
What is a Guarantor Car Loan
When you apply for a guarantor car loan, a third party guarantees the loan on your behalf. This essentially means they guarantee to repay the loan if you cannot.
So, under what circumstances would you need a guarantor to apply for a car loan?
A guarantor could help you get approved for a car loan if:
• You have bad credit.
• You have had little or no dealings with credit in the past.
• You have recently arrived in Australia and have no credit history.
• You are a pensioner.
• You receive Centrelink benefits.
• You are not employed in a full-time, permanent position.
Who can go Guarantor on a Car Loan?
Who should you ask to be a guarantor on your car loan? While you could ask anyone to go guarantor on your car loan, it’s a good idea to put some thought into your decision.
Firstly, your guarantor should have good credit. They are guaranteeing to repay your loan in the event you cannot, so the lender needs to know they can trust your guarantor to do this.
Secondly, your guarantor should meet the eligibility criteria for the car loan set by the provider. Again, your guarantor is the backup on your loan, so the lender needs to know they are a responsible choice.
Lastly, it’s usually best your guarantor is a close family member, such as a parent or spouse. Going guarantor is a significant financial responsibility. If you fail to repay the loan, you will jeopardise your guarantor’s credit standing, while also running the risk of jeopardising your relationship.
What are the Responsibilities of a Guarantor?
By agreeing to go guarantor on a car loan, a guarantor takes on legal responsibility for the full value of that car loan, plus associated costs.
So, while you, as the applicant, are responsible for making sure the loan, interest, fees, and charges are made, if you default, your guarantor may be asked to cover the remaining sum owed.
If your guarantor cannot afford this debt, security (such as the car or other assets) may be seized by creditors to cover the lender’s losses.
Can a Guarantor change their mind?
A guarantor can only exit a loan under specific circumstances.
• The guarantor may exit the loan before the applicant receives any money from the lender.
• The guarantor may also exit the loan before notice has been sent from the lender accepting the application.
• The guarantor may also exit the loan if the finalised contract is different from the original document signed by the guarantor.
What about if you want to remove your guarantor from your car loan?
The same rules apply. Unless your situation falls under one of the above circumstances, there is no way to remove your guarantor from your car loan.
Your only option would be to pay off that car loan and refinance to a new loan without a guarantor. This may be possible if you have made all your repayments on time and worked on improving your credit since first applying for the car loan.
What to do before you apply!
Don’t risk your credit, your guarantor’s credit and your relationship with your guarantor simply for the sake of buying a car. Check out these tips to make sure this is the right choice for you and your guarantor.
• Create budget and use a car loan calculator to work out exactly how much you can afford to borrow – and what your repayment schedule should look like.
• Before you decide on a guarantor, consider your relationship with them, and whether you want to be bound to them financially over the entire period of your car loan.
• Ensure the guarantor you choose has good credit and meets the requirements of the car loan.
• Consider getting legal advice if you are unsure about the process.
Think a guarantor car loan is right for you? Contact Car Loan World today to see how we could help!