Guarantorship is very common when taking loans of all kinds including car loans. But how does a guarantor car loan work? Has your lender requested for a guarantor before approving your loan application but you’re not quite sure why that is the case?
Well, no need to panic as you will find all the answers you need about how a guarantor car loan works.
Difference Between A Guarantor and a Cosigner
These two terms have been used wrongly over the years by many due to how similar they are. The role a guarantor plays in loan application is very similar to a Cosigner. However, they are not the same.
They are both requested by lenders in cases where the primary applicant alone cannot get approval due to certain factors. Whereas a Cosigner is more or less responsible for the payment of the loan just as the primary borrower is, a Guarantor only takes responsibility of the loan when the primary borrower defaults.
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What Is A Guarantor Car Loan?
Guarantor Car Loan is a car loan that is secured with the help of someone who is willing to vouch that you will pay back the loan and is ready to take responsibility of the loan if the primary borrower fails to pay.
Such a person can either be a trusted friend, family member, spouse, etc provided he or she has a good credit score and credit history.
A guarantor car loan is often used when the primary borrower has a bad credit, no credit history or a retiree. This is because such people ordinarily may not qualify for a car loan if they had applied alone because lenders see such loans as risky hence will want someone to guarantee for them. That way, they can hold the guarantor responsible if the primary borrower fails to make payment.
How Guarantor Car Loan Works
Guarantor car loans makes it easier for persons with a bad credit or no credit history to secure loans. Lenders request for a guarantor from borrowers with a bad credit score or history so that they can fall on the guarantor to pay back the loan should the primary borrower fail to make payments.
Although in reality the guarantor does not have any right to the car that is going to purchased, he or she is legally bounded to pay back the loan in case the primary borrower defaults hence before agreeing to guarantee a car loan for someone, you must be sure of yourself before commiting yourself into it.
Before you agree to become a guarantor, it means you are ready to take responsibility of the loan should the primary borrower fail to make payments.
Additionally, the loan is added to the credit history of both the primary borrower and the guarantor hence will affect the guarantors credit score as much as it would the borrower if there are any late payments or delinquencies.
Who Qualifies To Be A Guarantor
The qualification needed to be a guarantor is quite straightforward and I’m sure you may have guessed a few of them whiles reading to this point. Well, generally, whoever you choose to guarantee your car loan must meet the following requirements;
- Must be at least 18 years and above
- Must have a good credit score and history
- Be a citizen or a permanent resident of the country
- Employed with a steady income
Additionally, whoever you choose to be your guarantor can be your spouse, parents, sibling, friends, uncles and aunties etc.
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FREQUENTLY ASKED QUESTIONS (FAQs)
Q1. At What Point Do I Need A Guarantor?
Usually, you will need a guarantor for your car loan if you have a not so good credit score and history, a pensioner, student, non citizen, etc. This is because, such borrowers are considered risky hence the introduction of a guarantor makes the loan less risky.
Q2. What Advantage Do I Get For Using a Guarantor?
Applying for a car loan with a guarantor makes it easier for persons with bad credit to secure loans and at better rates than they would have gotten if they applied alone. You are also likely to be able to qualify for a higher amount of loan when you apply with a guarantor.
Q3. What Happens If The Borrower Fails To Make Payments?
That is where the guarantor comes in. The guarantor will be responsible for the loan if the primary borrower defaults hence will be obliged to pay the remainder of the loan.