What You Need to Know About Guaranteed Car Loans

A guaranteed car loan is a type of loan where a third party will guarantee the loan if the borrower defaults. If the loan is not paid, including both the interest and the principal amount of the loan, lenders are assured that a portion of the borrowed money will be returned to the company.

Small car loan companies usually require a guarantor, especially to borrowers with bad credit records. Given that they are a small-time lending business, lenders need to make sure that the money they are lending will be returned to them.

How Do Guaranteed Car Loans Work?

If you want to buy a car but have a bad credit score, a car lending company will offer you an alternative to a traditional car loan. This alternative is the guarantee car loan where the car lending company requires you to have someone to guarantee your loan.

The guarantor of your car loan will serve as the security for your loan. Whoever agreed to be your guarantor will be the one who takes responsibility for your car loan payment whenever you can not pay your obligations.

A guarantor can be any of your family members or friends. If someone agrees to take the responsibility of a guarantor, they must understand their role, which is to pledge their assets as collateral for your car loan.

Where Can You Apply for a Guaranteed Car Loan

You can apply for a car loan directly on a Bank or a Credit Union as direct loans. However, when it comes to having bad credit, applying for any loan on a bank would be a very inconvenient option. Banks tend to be stern when it comes to bad credit clients and require more requirements without the assurance of being approved.

There are independent car lending companies that can also offer you a guaranteed car loan option with minimal required documentation. You can research to look for a car lending company that fits your needs.

Familiarise Your Loan Before Signing Anything

This applies to all loans, not only in a guaranteed car loan. Once you signed the document, you are now legally committed to loans payment terms. Here are some red flags you need to watch out for before signing any documents.

First, you must examine the interest rate. It is the essential aspect of the car loan. You might qualify for a guaranteed loan given your credit score, the lender may charge you with a high-interest rate. Do not hesitate to ask questions regarding your loan interest rate and fees.

Second, you need to know the amount indicated in your loan. Remember that you only need to cover the cost and the value of the car. Do not agree to a loan that indicates an amount higher than your car’s value.

Third, you must study the terms of the loan. It is important that when you agree on a loan, you fully understand its terms to avoid future complications and confusion in payments. After you studied the loan terms and decided to give it a go, then you can now sign the paperwork.

What to Consider Before Choosing a Loan

Aside from understanding the loan terms, there are more factors you should consider before choosing or agreeing to a car loan. These factors may improve your loan rate and give you a lesser repayment cost.

The most apparent factor that you should consider and will improve your chance of getting a car loan with a lower interest rate is waiting. Wait for the perfect time to purchase your car and focus on improving your credit score. You can borrow a car from your families or friends until you have good credit to purchase your own via a traditional car loan.

It would be best if you also considered saving money for your dream car. Instead of opting for a loan and paying the extra fees, you can save money and purchase your car in cash. If you cannot save your dream car’s value, you can save as much as you can. The larger your down payment for the car, the lesser amount you will need to borrow.

Do not rush your decision in choosing a car loan company. It would be best if you were pickier in choosing a lender because each lender has different loan terms and interest rates. Do your research and look for a lender who can offer you the lowest interest rate possible for a guaranteed car loan. Compare all interest rates offered by all car lenders in your area and choose wisely.

Takeaway

Though guaranteed car loans decrease the risk for the lender, it does not make loans 100% risk-free. The possibility of the guarantor failing to pay the obligation is still present. Nevertheless, having a guarantor provides another layer of security for the lender, thus protecting their business from going down.