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What is a Guarantor on a Car Loan?
●January 6, 2021●5 minute read
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You may be trying to acquire a car but can’t seem to stop getting rejected for several reasons, commonly because of bad credit. Rather than going through the brutally high-interest rates of different types of loans, you might want to consider the possibility of getting a guarantor. Well, whether you need a guarantor on loan or someone else asks you to be a guarantor on their behalf, we have brought to you everything you need to know before diving headfirst into what it entails.
The real question is who a guarantor is, rather than what a guarantor is. A car loan guarantor is a person who is accountable for a loan on a car. The guarantor makes the payments on a car loan only if the car owner fails to meet those payments. This person serves as a guarantee that the moneylenders will get their money back quickly, swiftly, and without hassle. As you may have noticed, agreeing to guarantee a loan or be a guarantor to a loan involves some responsibility. That is why most guarantors are friends or relatives to the car owner.
Reasons a Person Might Require a Guarantor Car Loan
As stated earlier in this article, there are various reasons you might need to have a guarantor for your car loan. Some of which may include:
- Bad credit. Lenders are generally skeptical about giving out a loan to bad creditors. They are likely to request a guarantor car loan. After all, nobody wants to get the short end of the stick when it comes to money.
- No credit history at all. For instance, if you are new to Australia, you probably would not have an established credit history and wish to buy a car. You might require a guarantor to establish some form of trust
- First-time car buyers. Similar to the previous point, this is essential to minimize the risk involved with newbies.
- Unstable occupation. If you do not possess a stable job or you are fresh into the labour market, you might need an additional guarantee to ensure you can meet up with the necessary payments.
- People on the receiving end of pension from the Government may have a hard time trying to apply for car loans without the involvement of a third party.
Responsibilities of a Guarantor on a Car Loan
Before taking on the responsibility of becoming a guarantor to a loan, one must understand that they will be legally responsible for the loan in a case where the primary loan applicant is unable to pay. That means that if they do not pay, either out of inability or refusal to, you will carry the entire weight of the loan. It is typically not advised to guarantee for a person you are not familiar. You also need to understand the risk to your credit. If the owner does not make his/her payments, that will not read well for your credit as the guarantor. Not only will you be putting your money on the line, but it could also negatively affect your credit. There are some basic things you need to ensure the borrower can cover.
As a guarantor, you need to be sure that the car owner is reliable and trustworthy. We have heard so many stories of people taking up that responsibility for mere acquaintances. Most of those stories don’t have a happy ending. You should be able to vouch for their credibility. Yet another notable crucial point is the amount of the loan. It would be wise to compare the cost of the loan to the borrower. You should be aware of how exactly they plan to pay that money off. Do not be afraid to ask them questions that might seem invasive like their current income. It is also preferred to work with how much they earn now and now base it off money that might come in the future. If you are like most people, you would have experienced the disappointment of expecting money that is never going to come. In addition to the loan amount, the payment plan is just as vital. A person can afford to pay in a month will indeed differ from what they can afford to pay fortnightly or even weekly. Beware of assuming to know the terms and conditions of the deal.
If both the borrower, car owner, and guarantor are unable to pay the debt, countermeasures, or further action of the lenders will depend on the loan terms. The car involved in the deal may serve as security, leading on loan to the lenders confiscating the vehicle. Any other property or asset set as security or collateral on loan will also be seized in a case of defaulted payments. Going back to the credit we have brought up so many times, both credits (that of the borrower and the guarantor) might suffer.
Can a Guarantor Leave a car Loan Deal?
Someone might have signed their name on as your guarantor but is not having second thoughts, and you are interested in finding out whether they can leave at will. Being a guarantor is that you are also liable for the debt, making exiting at will extremely difficult. Do not think that as a guarantor you can walk away once the borrower screws up. Only certain situations allow the guarantor to walk away scot-free. Those situations include the period before you receive notice of your accepted application from the lenders; before the lenders dispatch money from the loan to the recipient; and of course, if there are any alterations or differences noticed between the contract the guarantor signed and the finished agreement. It is generally advisable for a guarantor with the desires to leave to contract to decide on legal counselling.
Deciding to be a car loan guarantor should not be a decision taken on the fly. It requires serious thought and probing. And if you have a guarantor, they should not be your escape route for getting out of paying your loan.
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Written by Jacaranda Team