What Type of Credit Does a Cosigner Need to Lease a Car?

Bad credit borrowers often ask someone to co-sign an auto lease because they cannot qualify on their own, but finding another party to guarantee your lease doesn't mean the dealer automatically approves your loan. Your co-signer needs to meet all of the requirements of a normal borrower. Thus, you should only ask a person with excellent credit to co-sign a loan.

Identification

Ideally, your co-signer should have a credit score in the highest tier -- above a 760 for most lenders. An average -- at least a 620 -- to above average credit score might suffice for an auto dealer. However, you never know the cutoff point for a lender, so adding a co-signer with the best credit score possible gives you the best chance at an auto lease approval.

Considerations

While car dealers weigh credit scores heavily in their auto lease decisions, they are not the only factor. A co-signer with a high credit score and excessive debt can be just as bad as a co-signer with a poor credit score. In general, a co-signer's monthly debt charges should never exceed more than 35 to 55 percent of his monthly income.

Alternative

Bad credit does not preclude you from acquiring an auto lease on your own. Auto dealers may overlook poor credit if you offer a substantial security deposit on the lease or pay for several months upfront. Alternatively, the auto dealer might just increase the cost of your lease. This is the least desirable option because you always want to pay as little as possible for any leased or borrowed goods.

Warning

If you decide to ask someone to co-sign your auto lease, make sure he knows the risks involved. Auto dealers often report leases to the credit reporting bureaus, so late payments on your part could drag down both of your scores. Should you end up defaulting on the lease entirely, the dealer could go after the co-signer for the outstanding balance.

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Lease vs. Buy Car Insurance

The insurance requirements of leasing and auto loan providers are very similar. Until you fully own your vehicle, your lender or lease provider requires full-coverage insurance coverage to protect its purchase. If you pay cash for your car, you may insure your vehicle as you please as long as you maintain a liability policy, a requirement in most states.

Collision Insurance Coverage

Collision coverage offers the most protection for your car. If the vehicle is declared a loss by your insurance company because of an accident, damages or theft, your leasing company or auto loan provider receives the market value payout from your insurance company for your car even if you're at-fault for damages. Whether financing or leasing, you must pay the remainder of the lender or leasing bank's loss if the insurance payout is not enough. Full coverage insurance does not guarantee your loan payoff.

Lease Exception

Whether your lease or finance, your lender or bank is listed as your insurance policy's loss-payee; you do not receive payment for your vehicle from your insurance provider. If the vehicle's market value payout exceeds your loan payoff, you'll receive the excess amount from your lender. If leasing, you won't receive any of your money back. For this reason, it is advisable to put as little down as possible when leasing a car. If the car is determined a loss, expect to lose your down payment amount and any monthly payments you made toward the lease contract.

Liability Insurance

If you pay cash for your vehicle, most states require at least liability insurance for registration. Liability coverage is the cheapest you can purchase, as it offers the minimum amount of coverage required by your state. A liability policy offers coverage for damage you cause to other people, known as bodily injury coverage, and damage to property, known as property damage coverage. Unless you can afford to replace your vehicle, it is advisable to add collision coverage to your policy to protect your vehicle purchase.

Penalties

Your lending or leasing contract describes the penalties you'll incur if you don't maintain required coverage. The penalty possibilities are very similar. Your lender or leasing bank may repossess your vehicle if you do not maintain coverage. Or, it may choose to add an expensive policy to your loan or lease amount until you provide proof of coverage again, which raises your monthly payment. If you fail to maintain state required coverage, your state may suspend your license or impose fines. Your insurance company reports your coverage limits, lapse, cancellation, reduction in coverage and renewals to your lien holder and state.

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How to Get Financing at Your Car Dealership

Most car dealerships have a special department set up to assist car buyers with the financing of their car purchase. A dealer considers the finance department to be a source of additional profits when cars are sold. A car buyer should understand what the dealer financing can and cannot provide.

Instructions

1

Determine the type of car you want to buy and how much you can afford for a down payment and monthly payment.

2

Estimate the car price for your budget using a rule of thumb of $5,000 for each $100 of payment for a new car, and $4,000 for each $100 on a late model used car. For example, if your payment budget is $350 for a new car, 3.5 times $5,000 gives a target price of $17,500.

3

Tell the car salesman what your price range is and that you plan to finance your car purchase. The salesman will ask about your payment expectations and if you have money for a down payment. As a negotiating tactic, tell the salesman you want to see the best financing deal you can get after you have picked out a car.

4

Select the car you want to buy and make sure the price is near your target price range. You will then have to negotiate the price and financing arrangement.

5

Complete a credit application with the salesman and tell him the amount of your down payment and that you want to see the best payment plan possible.

6

Negotiate with the dealership sales staff until you are satisfied with the car price and financing details. In negotiating, you should keep asking for a lower price and lower monthly payment. Make sure you get the rate of interest for the loan and the number of payments. Once you have agreed on price and financing terms, the dealership will complete the documentation required to get you the car loan.

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How To Look Into Refinancing My Auto With a Lower Interest Rate

Refinancing a car loan requires you to apply to another lender to pay off your old loan so you can start a new one. Refinancing is beneficial to some, as interest rates, credit standing or needs can change, and a refinance can accommodate save you money over the loan term or lower your monthly payment. When looking into refinancing, you should shop as you did for your original car loan.

Instructions

1

Call your current lender to determine the vehicle's payoff amount. Ask for a 10 or 15 day payoff so the amount due includes daily interest charges, known as the per-diem. The amount stated is the amount you'll have to pay to end your current loan.

2

Check your funds. You do not have to finance the entire payoff, as you can put money down--this can lower your payment if you were limited at the time you financed your car. If your situation has changed and you want to put money down for the refinance, you can do so, and instead of paying a higher monthly payment no matter how much you pay towards the loan, you can lower your payment by borrowing less.

3

Use an auto loan calculator to determine a new monthly payment based on extending your term, putting money down or lowering your interest rate. The Edmunds website offers one to use. Take out the taxes and fees when calculating.

4

Check the rates for used car loans in your area. Contact the bank where you have your checking account, credit unions and other banks of interest. Many banks offer rates on their websites, or, call to find out if you do not see the rates listed.

5

Visit the websites of the banks you're considering, as some may offer perks worthwhile to you. You will have to open an account at the bank you choose, so if some offer cash back on purchases, reward debit cards, travel miles or local discounts, this can help you to decide which bank to use.

6

Call or go to the bank you've chosen. Have your vehicle's VIN (vehicle identification number), year, make, model, level, options (such as leather or sunroof), mileage and payoff amount ready to give to your loan representative. Tell her you want a pre-approval for a refinance.

7

Ask the representative figure your new monthly payments if you are approved and have decided to refinance. Assume that you will be approved at other banks as well so think carefully before signing the papers. If you find that the refinance payments are attractive, you can complete the application process.

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How to Get a Good Interest Rate on a Car

Buying a car may require financing from your bank. Banks compete for car loans and strive to provide good interest rates for qualified applicants. Loans that are secured by a car provide the lender with collateral until the loan is paid in full. Most lenders offer car loans that range from two to six years. A car loan provides you with a method of obtaining financing over time for the vehicle that you want now. You can get a good interest rate on a car if you have stable income, excellent credit and timely payments on previous auto loans.

Instructions

1

Review your credit data online. Obtain your credit score, as well as a copy of your credit report. Visit websites such as Annual Credit Report and myFico to get your credit report. Dispute any incorrect items with the reporting credit bureau.

2

Check the interest rates for a car loan at financial institutions where you currently have a banking relationship. Inquire about interest rates from your bank, credit union or credit card company.

3

Use your membership from organizations such as AAA, Sam's Club, Costco's or BJ's Wholesale Club to find good interest rates for car loans. Contact your member services department to gather details about member's only specials on auto financing.

4

Speak with the finance manager at a car dealership. Share a copy of your credit report and mention some of interest rates that were offered to you for car loans. Compare dealer incentives and the interest rates offered by car manufacturer's against your research to determine your best deal.

5

Apply for a two- or three-year term. Select the most affordable term for your car loan, while considering most banks and auto lenders provide lower interest rates for shorter terms. Choose a four-year term instead of a five-year to term to get a better interest rate on your car loan.

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How Can a 16-Year-Old Buy a Car?

The excitement of turning 16 is often fueled by your ability to obtain a driver's license. Once you accomplish this motivating task, a desire to put your skills to the test and obtain a car is sure to follow. 16-year-olds, however, are ineligible for auto loans. In order to purchase a car, you must find creative ways to finance your vehicle.

Establishing a Note

One easy way to purchase a car as a 16-year-old is to create a note between yourself and a family member. In exchange for making monthly payments toward a purchase price, the seller offers you the car. This concept is similar to getting a loan from a bank for your car and making monthly payments. The difference is that credit, debt-to-income ratios and down payments are not factors in determining your approval. As long as you have a job, the family member or friend selling you the car can determine -- based on your character -- whether to create a note for a car. You can negotiate the amount of your monthly payments and the length of time you want to pay off the car.

Private Car Sales

Finding a car in the classified ads is a great way to buy an inexpensive car. Teens who save up to purchase cars commonly buy from private sellers. Buying the car outright requires little paperwork, similar to creating a note with a family member. Request a Carfax report to determine the condition of the car before handing over your savings. An adult experienced in buying cars from private owners can be an invaluable resource during your transaction.

Loan Exceptions

Auto loans are not impossible to attain, if your parents are willing to co-sign on a loan. Your parents need good credit, stable income, employment and a down payment to obtain a car loan. Once the car is purchased, your parents are considered the legal owners of the car. Even though you are not the official owner, you do have a right to operate the vehicle. Many auto lenders require buyers to have insurance coverage prior to approval. You may be able to obtain a policy in your name, but the cost of insurance for drivers under 25 costs more than for older drivers.

Titles

Generally, if you are under the age of 18, you are not able to enter legal contracts. Even after you purchase your car, your parents may be required to co-sign on the title. There are exceptions to this rule, since laws surrounding car ownership are state-mandated. To be safe, contact your Department of Motor Vehicles to determine the best way to obtain the title to the car you purchase, as well as register the vehicle. Many states consider any property of a minor to be the legal property of his parents until he turns 18.

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Is it Smart to Refinance a Car?

You may have considered refinancing your home mortgage loan to take advantage of falling interest rates, but you may not have thought about doing the same with your auto loan. In some cases, refinancing your car loan can also be beneficial, resulting in a substantial savings in the long run.

Significance

According to Edmunds.com, refinancing at the right time can possibly save you thousands of dollars in interest charges. It is also easier to accomplish than other types of refinancing such as for home loans, as there is usually less "red tape" for the borrower to deal with. In some cases, a refinance application can be completed in as little as 10 minutes.

Considerations

Factors to consider when deciding whether refinancing is a smart move include whether there has been a drop interest rates from the time when your purchased the vehicle or discovering that you could have obtained a lower interest rate for your newly purchased vehicle from a lender other than the one provided by the dealership. If you are about to make a major purchase like buying a home, refinancing your auto loan may also help you lower your monthly payments, easing your financial burden.

Time Frame

Generally, the less the time that has passed since you took out your initial loan, the more you may be able to benefit from refinancing. The longer the time period that you are paying the lower interest rate, the more money you may be able to save in the long run.

Warning

There are some factors that could reduce the benefits of refinancing your auto loan. For example, it is possible that the terms of your original loan may include a prepayment fee for paying the loan off early, such as when you refinance to another loan. In this case, you would need to weigh the amount of the penalty versus what you would save with the new loan to determine if refinancing is worthwhile.

Process

When seeking quotes to help you make your refinancing decision, it is a good idea to check with several lenders. According to Edmunds.com, the Bankrate.com website offers a service that will match your loan application with a number of suitable lenders, which can save you time and effort in your search.

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