Unfortunately, if you have a poor credit history, you can have a hard time leasing a new car. Can you have a cosigner on a car lease? Yes! Even with a bad credit score, you can still acquire a car through a lender with the help of a cosigner. In this article, we will outline all the nitty gritty of cosigning a car lease.
The Basics of a Car Lease
Before you sign a car lease agreement, you should first make sure that you can actually make the payments on time. Remember that interest rates can vary and depend on your credit, which means that your lease payment may be smaller or larger than others who lease out the same car.
Leasing a vehicle means that you are essentially borrowing it from an automobile dealer. Plus, most car leases have low payments with a yearly or monthly mileage limit. You can expect to pay more in charges if you drive over the agreed mileage limit, but if you plan to buy it at the conclusion of the lease, you won’t have to deal with those fees.
You can still lease a car when your credit is poor, but you should focus on leasing it from a reputable company. The majority of the time, a poor credit score can end up getting your application denied for a car lease. When this happens, you should try getting a cosigner to help you qualify for your car lease. Ideally, your cosigner should have an excellent credit score and can take over the lease payments if you are unable to make them.
What Qualifies As Bad Credit?
You may still be asking yourself, “do I need a cosigner to lease a car?” This answer greatly depends on your credit score. There are a variety of different factors that can damage your credit score. For example, if you skipped multiple payment dates on your credit card or surpassed your spending credit limit, can all plunge your credit. However, there are plenty of other factors that you can’t avoid such as repossession and bankruptcy, which can damage your credit as well. Unfortunately, these factors can hurt your credit for up to 10 years, making it extremely difficult to lease a car.
However, if you don’t know what your score is, there are plenty of online resources such as CreditKarma, which let you check your credit free of charge. You can expect your score to range from 300 to 850, where 750 is considered excellent and 550 is considered poor. If you have a credit score below 630, you should consider using a cosigner to help aid your car leasing application.
What is a Cosigner?
What does a cosigner do and how does cosigning a car lease work? Cosigners are people who can guarantee a loan of someone who either has no credit, poor credit, or lack of income. If your lender thinks you are a risk to their investment, a cosigner can step in to help with the approval process. However, as a cosigner, they have to promise to make any or all lease payments if the person they are cosigning for cannot.
However, don’t get the misconception that there is a lack of risk if you have a cosigner. The responsibility of the loan just shifts from you to your cosigner if you are unable to make the payments. Even if your cosigner makes the payments, your credit score can still suffer.
The Benefits of Using a Cosigner
If a car buyer has poor or no credit history, leasing a car with a cosigner can be extremely beneficial. Although there are nearly endless reasons to have a cosigner join your auto loan, most try to get their family to help with their application’s approval. However, more than just your family can help with your application, as long as they have a solid job history and excellent credit. Below, are a few perks that you can expect when using a cosigner in your car lease.
- Good Interest Rates
Luckily for people who use a cosigner in their car loan, they can expect to receive good interest rates, than those who don’t. This is primarily due to lenders no longer identifying you as a risk. Plus, this is another reason why using a cosigner is so popular these days for people who either have bad credit or don’t want their interest rates to bankrupt them.
- Slowly Building Up Credit
If you are new to credit or have a poor score, using a cosigner can actually help you build up your credit. Since you can be approved for larger investments with a cosigner, the larger purchase you buy, the higher and faster your credit can improve.
- Get Necessary Experience
Since your cosigner will have great credit and job history, you can get real-world knowledge on how to get a good enough financial background to no longer need a cosigner. Plus, with the wide range of younger drivers on the road, most need the help and guidance of a cosigner to make sure they are getting the best deal possible at the dealership. Unfortunately, some car sellers try to jip younger drivers on either overcharging or selling a car in poor condition. Under the helpful hands of a cosigner, you can make sure you are getting even less of a risk than the car seller.
How To Find a Cosigner
In order to find a cosigner, you should first turn to family members and friends and ask, “can someone cosign on a car lease?” It may be a good idea to start by making a list of all potential cosigners. The ideal cosigner will be somebody who knows you well, knows that you will work hard to make your monthly payments, and cares about helping you.
This is why you should ask family members first. Likely, they will know you better than anyone else and will truly care about your financial well being. Check with your parents, siblings, or close aunts and uncles. Friends can be just as good of an option.
A good cosigner is also somebody with a great credit score and a history of on-time payments. Try to find someone who has experience with credit and borrowing money. It may also be a good idea to find someone with a solid income who will be able to pay if you are unable to. Even if they are willing to cosign, approaching someone with a low income or poor credit score will not do you any good.
Try not to become too upset if you are unable to find a willing cosigner. This is a financial burden and may be too much of a risk for some. Even someone who wants to help you may not want to put their finances in danger.
What Your Cosigner Should Know Before Signing Anything
You are responsible for making monthly payments
Though the burden typically falls on the lessee, you are both equally responsible for paying back the loan. If the main borrower is unable to pay, you, the cosigner, will be required to pay the full amount, plus any other fees that may have accrued.
The lease can damage your credit score
The lease will appear on your credit report as if you had taken out the loan yourself. If the lessee makes any late payments or defaults on the loan, it will negatively impact your score.
You are allowed to negotiate the terms of your obligation as the cosigner
Generally, the creditor will provide an outline for all of your obligations under the lease. The terms of this agreement, however, are negotiable. Just make sure you have any agreement in writing.
It can affect your ability to obtain a line of credit
Other creditors and lenders can see if you have cosigned on a lease. If they feel the obligation is too much to handle, they may determine that you are unable to handle another line of credit and reject your application.
You may be the creditors first target
In certain states, the creditor can approach you first to collect on a debt before contacting the principal borrower.
It is difficult to be removed as a cosigner
Once you agree to be a cosigner, it is difficult to have your name removed from the contract. We will discuss this process more below.
What To Do If You Cannot Find a Cosigner
Do you need a cosigner for a car lease but are unable to find one? Though it can be more difficult, leasing a car with bad credit and no cosigner is possible. If this is the case, there are some other options for you. You can…
Boost Up Your Credit
This is the best option if you are able to wait before leasing your new car. During this waiting period, you can take the necessary steps to rebuild your credit so you can improve your score and your likelihood of qualify for leases in the future. Consider getting a secured credit card or a credit builder loan.
Put Something Up as Collateral
If you already own something of value, you can often borrow money against the value of the object. This will provide the lender with extra security and you will be more likely to qualify. However, this can be a risky option as, if you are unable to pay for your car lease, you could lose the object you put up as collateral.
Borrow Less Money
You may be more likely to get approved for a lease if you borrow less money or you choose a car of lesser value. This will mean smaller monthly payments for you. You could also seek out a different lender, specifically one that specializes in subprime credit. This, however, can be risky too as you may end up paying sky-high interest rates.
Can a Cosigner Be Removed From a Car Lease?
The answer is technically yes, though the process is fairly difficult. There are two main ways that you can remove a cosigner from a lease: end the lease early, transfer the lease, or purchase the car outright by refinancing.
Ending the Lease Early
To remove a cosigner from your lease, you can choose to terminate the lease early. Though this option is available, it is not without its own substantial fees. First, you must pay an early termination fee. This is a penalty for ending the lease before it is supposed to end and can run between $200 and $500.
Your lender may also require you to pay a depreciation fee. Motor vehicles drop in value as soon as you drive them out of the dealership. You lender may require you to pay for the loss of the value. If you keep the car until the end of the lease, you will not have to pay this fee. However, if you break the lease early, it is likely that you will need to pay this fee. This cost is based on the current value of the car and the number of months left on the agreement.
Transfer the Lease
Your lender may also allow you to transfer your existing lease to another person. While this is the cheapest way to remove a cosigner, not all lenders are willing to use this method. You will also need to find someone willing to take over your lease.
Purchase the Car by Refinancing
If your credit score is still low when you are trying to remove a cosigner from your lease, this is probably your last option. After all, a refinance is based on your credit score and worth, as well. If you needed a cosigner before, you will likely need one for the refinance too.