Car Loan Guarantors – What’s the Deal?

By Angela Monroe - July 27, 2020

Hand in hand - Tips-in-Choosing-a-Bad-Credit-Car-Loan-Guarantor

Using car loan guarantors is an awesome idea (in theory). Lower rates, higher amounts available to borrow and an increased chance of actually getting approved. However, it’s not as simple as it may seem…

Here are a few tips and pointers on car loan guarantors from industry experts.

Wait… what is a guarantor?

woman thinking near question mark

‘Guarantors’ in the car loan world are becoming a thing of the past. In other words, the idea of finding someone who ‘promises’ to pay back the loan if the original borrower can’t or won’t doesn’t really exist in Australia anymore.

You can, however, use a co-borrower. Usually, lenders require these to be immediate family members or partners whom you live with. Generally, the borrower and co-borrower must have an interest or ‘stake’ in the vehicle – they’ll drive it and contribute to the loan repayments. If this is a struggle for you, find out how to get a higher chance of approval.

Talk to a broker

Discussing near laptop

Make sure to find out the facts before approaching someone and asking them to sign on the dotted line. Brokers are financial wizards and deal with finding lenders for people everyday. Speak to a broker about how a co-borrower might affect your application and the rates and amount you can borrow. Make sure to know how your partner or family member’s credit file might be affected and exactly what they’ll have to pay if you can’t.

In other words, make sure you have all the information before asking someone to co-sign your loan.

Make sure the person you ask can actually be a co-signer.

woman checking list on phone

A co-signer needs to have stable income and a good credit history. Prior to making an application, talk to your family member or partner and make sure they know what they are getting into.

Their income should be from a full-time job and they shouldn’t be on probation. Lenders worry about job stability when people are on probation. Furthermore, if the potential co-borrower has had multiple jobs in recent years they should have been in the same industry.

Credit history is hard to know unless you ask, but you may have an idea about their past finances if you know them well.

More Information

idea light-bulb post-it note

Remember, if you make a formal application for a loan, it’ll leave an enquiry on your credit file and may leave one on the co-borrower’s credit file too. An enquiry is a note on a credit file saying you applied for credit (a loan). Multiple enquiries in a short span of time can reduce a credit score.

Ask yourself the following questions:

  • How secure is your and your partner’s / family member’s income?
  • How much will the co-borrower have to pay if you default on the loan?
  • If you’re approved for a larger amount of money due to having two people share the loan, can you afford the repayments?
  • Do the benefits of having a co-borrower actually make it worth bringing one on?
  • What are the average interest rates for a bad credit car loan?
  • Will your relationship with the co-borrower be affected if they’re called on to pay alone?

End of the Day

silhouette of couple riding bicycles

Using a co-borrower who’s experienced and has stable income and credit history is a great way to achieve your financial goals. Many people use them to get into the credit world in the first place – meaning they’ll use a co-borrower for a small loan at a young age in order to build credit history for larger loans in the future. If you’ve got bad credit and are thinking about co-signing a loan, talk to a broker. They can access information and guide you through the process without obligations or enquiries on your credit file.

Angela Monroe
Angela Monroe is the Community Manager at The Positive Group, specialising in giving people the information that they need when they need it, and putting you on the path to a fair financial future. She has 8 years of experience in helping Australians find the right finance solutions, and regularly contributes articles to empower Australians with the knowledge they need to become financially healthy.

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