Do You Need A Cosigner For A Car Lease? What To Know
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If you’re in the market for a new car, a lease can be an appealing option, especially if this will be your first car. In fact, about 25% of all vehicles in the U.S. are leased – not purchased outright. But sometimes your finances alone aren’t enough to obtain a lease or get the terms you prefer. A cosigner can assist you by stepping in to be on the hook for your lease payments if you are unable to follow through with your agreement. So when do you need a cosigner for a car lease? We’ll go over everything you need to know about cosigning in the article below.
What Is A Cosigner?
A cosigner is someone who has agreed to take on legal responsibility for another person’s debt or legal contract, such as a lease. If you have been identified as a risk, a dealership may require you to use a cosigner, or you may choose to use one for your own reasons, such as obtaining a better interest rate. Having a cosigner is a way to guarantee that the terms of the agreement are upheld one way or another if the original applicant fails to follow through in some way.
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When Do You Need A Cosigner For A Car Lease?
Since a lease is essentially a means of borrowing a vehicle from the dealership, the dealer wants to know that whoever drives away with the car will be able to hold up their end of the agreement. Without a cosigner, you may be considered a sub-prime applicant and be ineligible for a lease or for the best terms.
In the following situations, a cosigner might be necessary in order to lease a car:
- When your credit score isn’t the greatest. If you have subpar credit (think 620 and below), many dealerships and financial institutions will be hesitant to lend you money or set up a lease. Having a cosigner allows those who would otherwise not qualify for a lease or a loan to obtain the transportation they need by having someone else with better credit take on the responsibility. Even if your credit score is technically still considered eligible for a lease, you may still see a benefit from using a cosigner if their credit score is significantly higher than yours and can result in a better interest rate.
- If you have an unfavorable debt to income ratio. Just like with your credit score, having an unusually high debt-to-income ratio can also affect your eligibility to obtain an automotive lease. This simply means if you have too much debt and/or not enough income, you will not qualify because you are deemed a credit risk. Having a large amount of debt affects your ability to make your monthly payments, as does your income.
- If you have no credit. In some cases, you may not have established a credit history or credit score at all yet. Thankfully, obtaining a lease through the use of a cosigner will help you begin to build credit since the lease information will get reported to all 3 credit bureaus under your name as well as your cosigner’s name. So be sure you make all those payments on time!
- If you have little to no job history. In addition to checking out your credit, most institutions are going to look at your overall financial picture to determine your financial health. This means that they will need information on your income and employment history. If you are just getting established, dealerships and lenders may be hesitant to allow you to complete a loan or lease application without a cosigner.
- If you are underage. Generally, you must be a legal adult (age 18) in order to buy or lease your first car. If you are 17 and under, you will need a cosigner on your lease who is above the age of 18, most likely one of your parents or guardians. Since many teenagers begin the process of learning to drive and getting their first car around the age of 15 or 16, it becomes very important to have a way to get around this age requirement through the use of a cosigner.
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How Do You Lease A Car With A Cosigner?
Now that we’ve covered when do you need a cosigner for a car lease, the next question you might have is how do you obtain a lease with a cosigner? Thankfully, the process of obtaining a lease with a cosigner is fairly simple, and the most difficult part may be finding someone who will agree to take on this legal obligation for you.
Most of the time, a cosigner is a direct relative such as a parent or spouse. However, cosigners can also be extended family, friends, or even coworkers. Just remember that you are asking for someone else to be on the hook for your potential financial mistakes, so be sure not to get offended if someone declines to cosign for your vehicle.
You will then need to find out the exact requirements and specifications from the dealership you are trying to obtain the lease from, but in general, they will likely need to appear in person to submit an application and fill out paperwork. Your cosigner will most likely need to submit documents such as proof of income, residency, and employment history. The dealership will also run their credit and make sure they are a trustworthy applicant to cosign for you. Both your name and your cosigner’s name will then appear on the contract, and the reporting data for the lease will appear on both of your credit reports.
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Final Thoughts
So do you need a cosigner for a car lease in every situation? The short answer is no. While there are some situations where a cosigner may be beneficial, and some cases when it may even be required, such as if your credit score is too low, you do not always need a cosigner for a lease.
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