Guarantor car finance
Looking for a new car – What are the options?
For those who can’t buy a car outright, there are lots of different methods of financing available. Each has its own pros and cons, and it is important to remember to consider all of your options before taking out credit, and that not all the options will be available to everyone.
Hire Purchase (HP)
Hire purchase is a way of financing a car in which the loan is secured against the vehicle. A deposit is required (usually around 10%), followed by fixed monthly repayments over a set length of time. Ownership of the car will be confirmed once the final payment has been made.
✔ You own the car (at the end of the agreement)
✔ Fixed repayments
✗ Monthly repayments may be high (especially for shorter agreements)
✗ The car could be repossessed if you miss payments
Personal Contract Purchase (PCP)
Personal contracts are a similar principle to a hire purchase agreement in that you pay an amount each month of the contract. However, there are some key differences. Usually, the monthly payments will be less than HP, because instead of getting a loan for the full value of the car, the loan is for the difference between the current price, and the forecast value at the end of the agreement, based on agreed mileage
At the end of the agreement, ownership of the car will only be achieved with a final, balloon payment of the resale price. Otherwise, the car is handed back to the dealer.
✔ Lower monthly repayments
✗ You don’t own the car (unless you make the balloon payment)
✗ You will have to pay more if you go over on your mileage agreement or if the car is damaged when you hand it back
Personal Contract Hire (Leasing)
Leasing a car is a lot like PCP in that the buyer does not own the vehicle, but they make payments to lease the car over an agreed period of time. The payments are likely to be more than PCP, as the deal will include servicing and maintenance costs (providing a specified mileage is not exceeded).
At the end of the agreement, the car is returned to the dealer.
✔ Fixed monthly repayments
✔ No surprise repair costs as service and maintenance are covered
✗ You don’t own the car
✗ Usually a hefty deposit (three months rental)
✗ Possibly extra charges if you go over on mileage, or you want to end the deal early
Taking out a personal loan to pay for a car purchase will mean that the car is owned outright from the beginning. Lenders will usually want the Borrower to have a strong credit history, meaning those with less than perfect credit (or those who haven’t had the chance to build up any credit history) might not be approved. With a good credit rating, you can get approved quickly.
✔ You own the car
✗ You’ll need a good credit score
A Guarantor Car Loan
If the personal loan option sounds appealing, but you have a less than perfect credit rating, then Guarantor car loans could be an option. You’ll need someone who has known you for more than twelve months and trusts you to act as a Guarantor.
Guarantor loans can be used for almost anything – not just for car finance. They are unsecured, which means if the payments cannot be met, the Borrower’s home, or in this case car, is not at risk.
UK Credit offers unsecured Guarantor loans of between £3, 000 and £15,000 with APRs ranging from 24.9% to 39.9% and repayment terms of 36 to 60 months.
Who are Guarantor car loans for?
Guarantor car loans may be suitable if you do not have a strong credit rating, provided you can afford the monthly repayments. You will own the car outright, and you’ll know exactly how much you’ll be paying each month if you chose a loan with fixed interest rates.
An added benefit is that by making regular repayments, you could improve your credit rating, meaning that you could qualify for better loan rates in future.
✔ Past credit problems may not be an issue
✔ No risk of repossession
✔ Build your credit score
✗ Interest rates typically higher than personal loans
Who can act as your Guarantor?
Your Guarantor should be someone who knows you well. This will usually be a family member, partner, or friend, and must be willing and able to make repayments if you do not.
They must have a reasonably good credit history, and be aged between 25 at the start of the loan and 70 at the end of the loan term. They must own their own home, either through a mortgage or outright, and be employed, retired or on certain benefits. This is what enables us to offer rates of 24.9% – 39.9% APR.
Find out more information on who can be a Guarantor, visit our Being a Guarantor page.