If you can’t qualify for an auto loan on your own, a co-signer can seem like a lifesaver. It’s a huge burden for someone to take on — they’re assuming financial responsibility in the event you can’t make the car payments. But as time goes on, circumstances and relationships change. You may find yourself no longer needing or wanting the co-signer on your loan. Fortunately, you can remove them and this article explains how to do it.
Can you remove a co-signer from a car loan?
It is possible to remove a co-signer from a car loan. To do so, you will need to prove that you have improved your credit score since the time of the loan’s origination and demonstrate responsible payment habits as well as provide proof of sufficient income and financial resources to cover the loan payments on your own. Both the borrower and the co-signer must typically agree for the co-signer to be removed from the loan.
Reasons to remove a co-signer from a car loan
Circumstances in life change. You may want to remove a co-signer for any number of reasons Here are a few of the most common.
Perhaps you and the co-signer are no longer in a place where you once were. It could be because of a romantic break-up, a falling out, or maybe somebody moves away and is no longer a big part of your life. Another common scenario is when teenagers grow up, and no longer need their parents’ help making car payments. In either case, the relationship has shifted to the point where it no longer makes sense to have a car loan together.
Because the co-signed loan will appear on their credit report, too, it might be necessary to remove the co-signer from your loan agreement. Because they are legally on the hook for the debt, it can raise their debt-to-income ratio and limit their capacity to secure financing on their own.
If you can’t afford the payments and stop paying the loan, their score will feel the impact. But you’ll unlikely be able to remove a co-signer from a loan once you’ve defaulted because they vouched for you and promised to pay if you couldn’t.
It’s possible that your co-signer is struggling financially and can no longer afford to make payments on the car loan. If this happens, the worst-case scenario would be a default, where both of your credit histories would take a hit. If selling the car is not an option, one solution may be to remove the person as a co-signer. It’s important to note, however, that you will become entirely responsible for the payments, so make sure you are financially capable of taking on the extra burden.
How to remove a co-signer from a car loan
Removing a co-signer from your auto loan when you no longer need them is a relatively simple process, provided you meet the lender’s eligibility criteria to get a loan without them. To start, you’ll want to contact your lender and explain the situation to see which method of removal is best for you based on the circumstances. Sometimes it’s as easy as filling out a form.
Obtain a co-signer release form
Ask your lender whether it offers a co-signer release. This release is a form that requests the removal of the co-signer and makes you the sole borrower. It asks for information about both parties, including their names and contact information. You may need to provide proof of income or other financial documents to show that you are now in a position to make your payments without any assistance.
Once you’ve submitted the form and all necessary documentation, it’s up to your lender to approve or deny your request. It’s important to keep in mind that just because you meet the requirements doesn’t automatically guarantee approval. Ultimately, your lender has full discretion over whether or not they will grant your request.
If your request is denied, don’t give up hope—you may want to try reapplying after waiting some time and improving your credit score if possible.
Your initial loan term and interest rate may be impacted, especially if the co-signer’s credit score was higher than yours.
Refinance the car loan
When it comes to removing a co-signer from a car loan, refinancing is the most effective strategy. The process involves applying for a new loan with yourself as the sole borrower. Once approved, you use the money from the new loan to pay off the old one. This satisfies the loan agreement and the co-signer will no longer be on the hook for your payments. You will be solely responsible for repaying the new loan.
Before going ahead with refinancing, make sure that it’s really what you want—and more importantly, that it’s really what’s best for you financially. Make sure that all of your other options have been explored before taking out another loan and committing yourself to additional monthly payments over an extended period of time. Also bear in mind that refinancing typically requires paying off any outstanding fees or penalties associated with ending your current contract early.
Depending on your credit, your payments may increase or decrease.
Sell the car
You could also sell the car and use the sale proceeds to pay off the loan if you want to get rid of the co-signer. This method is a good last resort — provided you aren’t upside down on your auto loan.
Prior to listing your car for sale, it’s important to understand the current market value of your car and do research on comparable cars in your area recently sold. Knowing what other people in the same situation were able to get for their vehicle gives you an idea of how much money you’ll be able to make from the sale.
Paying off the loan, regardless of how you do it, ends the legal co-signer’s duty to cover your loan.
Considerations before removing a co-signer
Before you try removing your co-signer, check your credit to ensure you meet the minimum requirements for qualifying for the loan alone. Once you know you’ll qualify, you can ask the lender which option is best. While you may feel ready to take on your own loan, the lender ultimately has the power to decide whether a co-signer release or refinance is an option.
What rights does a co-signer have on a car loan?
A co-signer can’t take a car from the primary borrower because they have no legal claim to it. The co-signer still has a big responsibility to ensure that the loan is paid back on time even though they don’t own the car.
Does removing a co-signer affect your credit?
Removing a co-signer may impact your credit if you need to refinance the loan. It’ll show up as a new loan, which can temporarily lower your score.
Can you remove a co-signer without refinancing?
You can remove a co-signer from a loan by completing a co-signer release if the lender offers the option. You can also pay off the loan in full to satisfy the agreement and remove the co-signer’s obligation.