I am considering leasing a new car for my ex-wife. What can go wrong?

Question

My ex-wife is a financial wreck and is about to lose her car (lease is over) in an area of the country where you can't get around without one. She can't get a new one because her credit is really bad (bankruptcy, 2 evictions, home foreclosure, etc...). Anyone that has ever had financial dealings with her has regretted it. I do not want to deal with her either.

My ex-Mother In Law (MIL), who is very responsible with money and reliable, has cooked up a plan which gets her daughter a car for now and has a financial benefit for me as well.

Her plan is to have me lease an inexpensive car (under my name) for her daughter. The cost of the lease is $3k down and $150 a month for 48 months. Her daughter (my ex-wife) would drive it for 2 years and then turn the car over to our son, who just turned 14 (and thus will be 16 in two years - of driving age). So for now the ex-MIL will provide the down payment and will pay the lease for 2 years. Once our son turns 16, I will take over the lease payments and our son will use the car until the termination of the lease. So there is a financial benefit for me in that my son will have a reasonably inexpensive (for me) vehicle to drive in, once he turns 16.

I am pretty sure that the ex-MIL will not let me down (I've loaned her large sums of money before and she always promptly repaid). Her daughter, though, is a loose canon.

My question is this. What can reasonably go wrong? And how can I protect against stuff that might go wrong. Is this a good or bad idea?

Some facts:

• Ex-MIL can't co-sign because she doesn't have credit either - basically lives on fixed income.
• Ex-wife's relatives won't co-sign cause they've been burned before
• My credit has just recovered from the insanity of the divorce and I am planning to buy a house in a year or two.

P.S. 12/24/2014 - Several people asked me to follow up, so here it goes. I was about 80% against any further financial dealings with my ex prior to posting the question. And you guys and gals talked the rest of sense into me, so I refused to help. Despite intense lobbying from ex-MIL and some others in my ex's life.

Apparently she must have been able to talk someone else into co-signing because the week after she came to pick up the kids in a brand new Toyota Prius. So I guess happily ever after for everyone.

Answer 1

Everything on Earth can go wrong. Including, god forbids, your MIL being hit by a bus the next day and your ex inheriting all of her belongings and none of her promises to you.

This is a bad idea.

What I would suggest doing would be for your MIL to buy your ex a cheap and simple clunker to move herself around without you being ever involved.

If you still want to go into this adventure, I'd advise to do these things:

1. A written contract with MIL that details all the terms and agreements. Cover the potential unfortunate events like the one I made up in the first sentence.

2. A written contract with your ex about how and when she can use your car.

3. Insurance to cover all the potential damages and liabilities she can cause, in your name, with her as additional insured.

4. Be ready to bear all the costs associated with the car. You're not a co-signer in this scenario - you're the only signer. The dealership will come after you and you alone.

Answer 2

Besides the ex-MIL not coming up with the monthly payments, and the ex-wife destroying the car there are other problems.

A lease generally limits you you a specific number of miles over the term of the lease. You may be limited to 1,000 miles a month for a total of 36,000 over the 3 year time of the lease. Your ex-wife could drive all 36K miles in her 24 months. Which means every mile your son drives will be at a penalty rate. Driving 1000 mile a month at 15 cents a mile is $150 a month in penalties, plus the original monthly cost of the lease.

You need to understand if the lease contract will allow this sort of transaction. You will need to name the principal drivers. They will require specific levels of insurance. If you don't name your ex-wife on the policy, and she is in an accident, the damages might not be covered. The leasing company could also pursue you for fraud.

Answer 3

Does your planning include contingencies for

• a total loss of the car (Accident)
• repo of the car (her not paying)
• disappearance of the car (her driving to mexico, one way)
• a hit on YOUR credit when she fails to keep her end of the bargain? (Those who ignore the past are destined to repeat it)
• you paying for everything (she falls behind on payments, and well... it's completely in YOUR name and everyone else she's dealt with has been burned - why would THIS encounter be different?)
• Other unseen fees (Mile overages as mentioned by mhoran, for example)

Can you afford the late fees, insurance increases, bad credit hits and all the other downsides when this goes bad?

Why does she NEED a new car on lease?

Personally? I'd go for option B) Do what it takes to have her OWN a car.

Why not just have her get a car that costs IN ENTIRE the $3k that would be used for a down payment on a lease? Maybe add a bit of your own money "for old times sake" to the pile? Or a small loan to get to where she can get a usable, dependable car? Say, a $3-5k loan in your name that she's responsible for the payments. $3-10k can get a very dependable old car.

10 great cars for 6k or less

Everyone else has been burned by her - for whatever reason. No idea what the reasons are, but she seems to be unable to pay her bills. Why would this time be any different? Your name on a car + someone who can't pay bills = a bad proposition.

I would LOVE to help anyone who's been important in my life. Including MY x-wife. But I wouldn't agree to this deal unless I KNEW that I could 100% cover the costs when things go bad - because at this point, odds are they will.

Answer 4

I think everything in your case is just simply missing one important rule of how credit works.

Essentially, your MIL cannot get a loan. You can. You are making her a large loan that she cannot get for herself. That is all. That is the essence of what this deal is. It is not without interest - she makes a financial contribution toward your son, you get the deal in 2 years assuming she doesn't default (she will), etc.

Imagine it this way: you are sitting in the dealership with the dealer and your MIL. She wants a loan to pay for the car. The dealership says, "you are way not credit worthy." So your MIL says, "why doesn't my son-in-law take out the loan instead?" Now the dealership says, sure, that's fine. From the dealer's standpoint, every other part of your arrangement is irrelevant - boring, even. The only magic trick is in who takes the loan out, no other difference.

You're letting your MIL pull a car out of her sleeve like a magician, and in taking the deal you're believing her.

This sentence:

I am pretty sure that the ex-MIL will not let me down (I've loaned her large sums of money before and she always promptly repaid).

is everything. You're making a rather large bet that the things that can go wrong in two years - including any situation involving your wife's welfare - are rather miniscule. And furthermore, that the few times she's paid you back - that did NOT convince banks and dealer she is more creditworthy - justifies her good creditworthiness.

Is the interest worth it? Do you really believe that your MIL needs to wring a car out of you before she would consider contributing to her grandson's well-being (which is, essentially, the interest)?

But wait, it's NOT everything.

Her daughter (my ex-wife) would drive it for 2 years and then turn the car over to our son.

Even if your MIL is creditworthy, the woman you described as follows:

Her daughter, though, is a loose cannon.

Will be holding and returning the collateral in this deal. Things she can do include:

• destroy it for fun because she's mad at you for something, with no legal way to retaliate or punish or hold her accountable
• anything you would do with a car you knew for a fact you would not have in 2 years

So I'm arguing two points:

1. That you're getting the wool pulled over your eyes in your high estimation of your MIL's creditworthiness, because you missed how credit was moved in this situation.
2. That you're missing the fact that the collateral on the loan belongs to someone who you would not trust in a loan.

Obviously my opinion on this is clear. I hope I did a decent job of explaining where the components of this deal (credit, interest, collateral) play out in the eyes of a dealer or bank, and get lost in the mechanics of the rules you worked out with your family.