Car leasing is a form of auto financing where the person taking possession of the vehicle arranges to pay monthly payments covering the depreciation of the vehicle. At the end of the lease, the user of the vehicle can either purchase it or return it to the bank or leasing company. Leasing has credit requirements similar to an auto loan, and if a lessor does not qualify, another person, including a parent, can co-sign the lease.
When Needed
A leasing company may ask a person leasing a car to have a co-signer when the lessor does not meet the requirements for the lease. This can be because the potential lessor does not have sufficient credit history, as is often the case with younger people starting out, who may turn to their parents for assistance. Leasing companies may also require a co-signer to approve a lease if the potential lessor has experienced credit problems, such as late payments or repossession. If you have not been employed for long at your current job or are a student, you may also need a co-signer.
Requirements for Co-signer
Since the potential lessor does not meet the requirements of the leasing company, it is up to the co-signer to do so. Leasing a car often requires better credit than purchasing because of the increased risks to the leasing company, and a potential co-signer must meet those requirements. Parents generally have a longer history with credit bureaus than their children, which makes it easier for them to qualify, but they must also have the required minimum credit score. Good performance on other car loans or leases that the parent has been obligated to will also be helpful.
Cautions
If a parent co-signs for you on a car lease, they must be prepared to make the payments if you cannot do so. By co-signing, the other party agrees to pay the lease in full if you default. He may also be liable for any late fees that you incur. With a lease, the co-signer may be responsible for any lease termination charges that you have at the end of the lease. These include excessive damages to the vehicle and required maintenance that you did not perform, as well as excessive mileage over what the lease allows. A co-signer can be subject to collection actions for any charges associated with the lease that the lessor doesn't pay.
Reducing the Risk
Your co-signing parent can reduce their risk with a lease. Notify your parent if you are having problems making the payment on the lease, so that he can make the payment and protect his credit rating. He may also want the leasing company to agree to notify him in writing if you are ever late. Your dad may also be able to have his name removed from the lease if you make the payments as agreed, and you are building your own credit and a good employment history. If this is an option, it would usually be much later in the term of the lease.
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