If you’re looking to lease a car but you’re young and don’t have much credit history, or even if you’re a bit older but have a bad credit history, you’re liable to be turned down by the vast majority of lenders.
This is due to the Financial Conduct Authority requiring that all lenders assess the financial suitability of any applicants. This is to prove they can pass a threshold to afford repayments and be trusted to make repayments.
This might seem like a Catch 22 situation, especially if you’re a young driver, as how are you supposed to build a good credit profile immediately when you can’t get accepted in the first place? Enter the car lease guarantor…
What is a car lease guarantor?
Traditionally a guarantor is something you might use on a mortgage application, however they are now becoming more prevalent in the car lease market.
A guarantor is usually a parent and they are nominated to cover the loan and continue payments if you are unable to make them. Their presence will give the lender confidence that payments will be made and reduces the risk of defaulting on the loan.
In effect, they’re a financial safety net for you and the finance company if you struggle to make any payments or miss a payment.
Who can be a guarantor?
Lenders may have specific eligibility criteria for who can be nominated as a guarantor, however, in broad strokes, the guarantor must be over 21 with a good credit score and credit history as well as a long-term fixed address on file.
They can’t be linked to you financially (IE a joint account) either, meaning a car lease guarantor can’t be a partner or spouse unless you have separate finances.
Traditionally people will nominate a parent or other family member as guarantor on their car finance application as there’s an element of trust involved between both parties.
Who needs a guarantor?
As touched on in the intro, you’re likely to need a guarantor for a variety of reasons be that age, a lack of credit history, or bad credit.
There are other reasons which could also require the use of a guarantor such as being self-employed or having an irregular income, as stability and regular incomings are important lending criteria for any lender.
How does guarantor car finance work?
The process for a car lease guarantor is exactly the same as any other form of car finance except there’s the addition of the third party.
If you’ve been through an eligibility check and have got the impression that you’re unlikely to be accepted on your own, the guarantor is essentially there to reassure the lender that payments will be made to the agreed term and in full.
If any payments are missed the guarantor will cover the payments on behalf of the applicant, but with any luck they’ll have nothing to do with the car finance after the deal has been signed.
All applications are reviewed on a case-by-case basis so the process and acceptance criteria for guarantor car finance might change from lender to lender.
Pros and cons of a car lease guarantor
Being a guarantor, or approaching someone to be a guarantor, has its pros and cons. As money issues are likely to be a major cause of friendships and relationships ending, it’s worth thinking long and hard before committing:
Pros of guarantor car leasing
- You will have more chance of securing a loan with a guarantor
- A guarantor might expand your acceptance limit to give you more vehicle choice
- Repayments on your guarantor car loan will continually build your credit score making it easier if you need to purchase something on finance in the future
Cons of guarantor car leasing
- If you have bad credit your guarantor might view the role as too risky
- If you fail to keep up repayments you could damage the guarantor’s credit profile if the terms of the loan aren’t followed
- Defaulting on your loan is likely to ruin your relationship with your guarantor. Is it worth that risk?
Alternatives to guarantor car leasing
If you feel like the risk outweighs the reward of a having a car lease guarantor, a few alternatives include:
- Build your credit rating: if bad credit is holding you back, there are certain steps you can take to boost your credit rating quickly
- Use a specialist lender: another alternative is to look at lenders who cater specifically for young drivers or those who have poor credit
If this sounds like it could work for you, Hippo can help. We can run a soft credit search to find out what your options are without impacting your credit score.
With access to a large range of lenders, we can then find one who we think will offer the best finance option for your circumstances: