How to find a guarantor for a car loan
Whether you're just starting out in your career or your credit score has fallen below acceptable levels, getting a loan for large items like a car or home can seem next to impossible.
Companies don't want to sell their products to people who can't pay for them. Since your credit score is a measure of how reliable you are in making payments, you may find yourself in a difficult position when applying for a loan with bad credit.
One way to get around bad credit scores is to have someone sign the loan with you.
The guarantor takes on a lot of responsibility, but in many cases it is necessary for the lender to close the deal with you. If you cannot repay the loan, the guarantor will be billed for the full amount and expected to make the payments for you.
Part 1 of 1: Find a guarantor for a car loan
Step 1: Decide if a secured loan is right for you. As a general rule, you should only buy and/or finance what you can afford. If you can afford a certain car, then you can finance it without a guarantor.
Here are some things to keep in mind before taking out a loan from a guarantor:
Buy a used carA: You can probably afford a cheap used car if you can afford to buy a new car. With a used car, the value doesn't drop as much with use, so it's unlikely you'll owe more than the car's loan is worth.
Take the time to build good credit: Postpone buying a car if possible and take the time to build a good credit history. If your score is already low, talk to a financial advisor about how you can restore your score.
Bad credit, while not always entirely the fault of the individual, is indicative of irresponsible financial behavior. Consider whether buying a car is a good idea given your current finances.
Make regular payments to build credit: If you don't have much credit but still need a reliable car, buy an inexpensive car with low mileage. A surety would be necessary, but as long as regular payments are made, this is a good opportunity to build good credit.
Get a loan on unfavorable terms: In some cases, people with mediocre credit scores get approved for a loan with poor terms or a high interest rate. In such cases, the guarantor could reasonably assume that payments would be made because the person was already planning the monthly loan payment.
Step 2: Prepare to apply for a loan. Gather the information you need to apply for a loan first.
Use the online service of your choice to find out your credit score and see where you are using that score.
A score below 700 will make it difficult to negotiate good terms, and a score below 350 will make it almost impossible to get a loan.
Calculate your monthly income and expenses. Using this, you should be able to calculate how much money you can set aside each month for your loan payments.
Find several different car models that will result in payments that are in the range you can afford. This will save time and energy when you are at the dealership looking for a car.
Step 3: Find a guarantor. While this may seem like one of the easiest steps in the process, it's important to slow down and really read through all the numbers involved before making a final decision with your surety.
Can you afford these payments in the long run? If you are young, you may miss opportunities in the future because you cannot take pay cuts or quit your job to go to school without paying off your loan.
Think of the money spent as one big sum. Let's say $15,000. How long will it take you starting right now to earn that much? Now add to that the fact that interest will increase over time.
Think about what happens if you can no longer pay your loan and the guarantor has to take over the payments. How will it affect them? Will they be able to pay the full amount themselves?
The people close to you are usually the ones who end up signing the loan with you, so there can be more risk than a bad credit score if the loan goes unpaid. Serious tension and family drama arose due to the joint signing of loans.
Sit down and talk to the guarantor and set a budget that will work not only for you, but for their budget in case they end up taking over the payments. This may reduce the amount you have to spend on a car, but it's better than signing a predatory loan agreement.
Step 4: Determine Your Price Range. Choose a car that is in your price range when tax is included in the price. Look at the total amount of money that is being loaned out and imagine what that extra expense would be like every month.
If your expenses are $900 a month and you earn $1,600 a month, then paying $300 for a car could force you to choose between an active social life and a savings account.
Your employment must be stable enough to pay this amount until the car pays off in full. It's easy to change jobs or even careers in four or five years, so keep that in mind when considering a loan.
Once you and your guarantor have agreed on the amount of money to be paid and the terms of the loan, sign the documents and hit the road!
You may need the help of a guarantor to qualify for the required loan. It is very important to manage your co-signed account wisely. Make sure you make monthly payments as agreed.
Remember that your guarantor is doing you a great favor, and if you are behind on payments, the delay will show up on your guarantor's credit report as well as your own.
