Sell the Vehicle: If refinancing isn't an option, another way to remove a cosigner is by selling the vehicle. If the car is sold for enough to pay off the existing loan, the cosigner's obligation would be eliminated once the loan is paid in full.
You can often remove a cosigner at any point during the loan period. Your loan paperwork might dictate specific terms, though. For example, some lenders require 24 months of on-time payments from the primary borrower before they'll consider releasing the cosigner.
In most instances, the only way to remove a cosigner from liability is with the creditor's approval or a refinance.
A co-signer or co-borrower can request a release from a car loan, refinance the loan, pay off the loan or sell the vehicle to remove themselves from the loan agreement. It is important to communicate with the other borrower and come to an agreement on how to handle the loan before taking any action.
Request release from a co-signed loan
Co-signers can make a written request to the lender to be released from a loan. In certain cases, like some student loans, there may be a provision that allows a co-signer to take their name off a loan.
You can remove the co-signer by refinancing your auto loan, receiving a co-signer release or paying off the loan. Before removing the co-signer, ensure your credit score is high enough to receive the same or comparable rate if you refinance.
This means that if the actual owner of the car fails to make payments, the cosigner could end up paying off the loan without having any ownership of the car. Cosigners who are hesitant to make this type of commitment may request that their name be on the title of the vehicle as added protection.
Being removed as a cosigner from a loan could potentially hurt your credit scores. How much your scores are impacted depends on the details of your credit profile.
Switching or removing a co-signer on a car loan is not as simple or as straightforward as it sounds. Often, you will need to secure an auto refinance loan, pay it off altogether or go through the process of completing a co-signer release — if the lender even offers this option.
When the title states “and/or” or “or” in the name field, only one person needs to consent to remove a name. If it only contains the word “and,” both parties need to agree to remove any name from the title. Therefore, you'll need to get consent from the co owner.
Lenders may look at the credit score of both you and your co-signer. So, a co-signer with good credit — a score above 660 — may result in lower rates. The average auto loan rate for subprime borrowers on a new car is 12.28 percent.
Unlike co-borrowers, who are on the title or have some claim to the property or funds, co-signers have no title or ownership of the property the funds are used for. For example, a co-signer for a vehicle has no legal right to the financed vehicle.
Refinancing the loan: If you want to remove a cosigner from your car loan, you may be able to refinance the loan in your name so it becomes your responsibility alone. For example, if you've recently gone through a divorce and your ex-spouse is a cosigner on your loan, you could refinance the loan in your name only.
Your score may drop a bit when you are removed as an authorized user, but you can improve it over time by using your own credit accounts responsibly.
If you're wondering “how to remove a cosigner from a car loan,” it is possible to do so. Contact your lender to discuss options. They will only agree if your credit history has improved to the point where you're not a risk to them.
It can affect your credit scores.
Because a co-signed loan is recorded on your credit reports, any late or missed payments can have a negative impact on your credit scores. If the borrower defaults on the loan and ceases payment, the debt may be referred to a collection agency.
Removing a co-signer from a car loan requires the loan to be paid off. If there's a balance remaining, that amount must be refinanced. The primary borrower could possibly qualify alone, or a new co-signer may be needed.
The lender can seek a deficiency judgment against you even though you didn't own the car and the person you cosigned for was supposed to make the payments. But if a car you cosigned for is repossessed, you still have rights when it comes to the sale and collection of the deficiency.
You're Responsible for the Debt
Because you're agreeing to be responsible for the loans you co-signed, you face all the consequences of missed payments or loan defaults. It's the same as if you'd defaulted on a loan you took out on your own.
After you buy a car, you have to wait at least 60 to 90 days before you can refinance, since it takes about this long to transfer the title to your name. Generally, it's best practice to wait to refinance a car loan for at least six to 12 months.
That seven-word question — “Can a cosigner become the primary borrower?” — is more complicated than you may think. But yes, a cosigner may become the primary borrower on a car loan through reaching an agreement with the lender or refinancing the car loan.
Releasing your co-signer means they are no longer responsible for the repayment of your loans. Some private loans allow you to remove the co-signer from your student loan after you've made a certain number of on-time payments.