Co-signing is a way for prospective buyers to purchase a vehicle via a loan, especially if their credit is less than perfect. The co-signer has better credit and acknowledges legal or financial responsibility should the buyer default on their loan. While co-signers can significantly help get auto loans, the shared loan can become tedious. The co-signer may want to get out of the legal ties instituted by the agreement, or circumstances may change for the one taking the loan, and theircredit score improves. In either case, removing a cosigner from the loan is possible but can be a complicated process involving a cosigner release.
Reasons to Want to Remove a Co-signer
Financial Strain
Circumstances may also change for the loan co-signer as they might have fallen on hard financial times. Unfortunately, if the person who has taken the loan cannot make regular payments in this situation, theco-signerwill not be able to assist. They may also want relief and to protect their credit score, leading them to remove a cosigner from car loan obligations.
Domestic Issues
Co-signers are typically close to their loan partner, considering people are sometimes more comfortable being backed by significant others or relatives. Unfortunately, life and relationships can change suddenly. Peopleget divorcedor become estranged from relatives. In these situations, the last thing anyone wants is a loan hanging over their heads. For example, if amarried couple divorces, the husband opts to keep the car, the wife might want her name removed from the loan used to purchase it. It could also be the other way around, but the effect of doing so would successfully remove a cosigner from car loan.
Improved Credit
Typically, one's credit scores improve as they make timely payments on their car loan. After several months or a few years, it may come to the point when one has reached the same credit scoreas their co-signer. That effectively makes it redundant to have a co-signer for the loan. Of course, the loan partner must check with their lender beforehand to ensure they get the same interest rate as the current loan without the cosigner attached.This scenario often leads borrowers to seek a cosigner release.
How to Remove Yourself as a Cosigner on a Car
Checking the contracts from the lender
The first thing to do is to conduct an in-depth investigation of the car loan contract. That is possible by acquainting oneself with the language and considering all the available details involved. Contact the lender to see if there was a ‘cosigner release’ clause. Some loans have conditions allowing the co-signer obligations to be removed from the debt. One restriction for removing the co-signer may be that a certain number of on-time payments have already been made. The borrower's credit score should not have dropped below a certain threshold as well to remove a co-signer’s obligation. The person to be removed should also not be the primary borrower on the loan. Not every car loan comes with these specific cosigner release alternatives. However, be sure to check before contacting the lender.
Refinancing the Loan
One way to remove co-signers from a car loan is to refinance it. It may be a long way to solve the issue, but it can effectively remove a co-signer if necessary. That means taking out a new loan for the remaining balance, which might be through a separate loan or transferring the balance to a new one from a separate lender. Refinancing a loan effectively means signing a new loan application. When refinancing, one can only state their name on the contract. That removes the co-signer from further legal obligation. However, approval must be given for the new loan to be an option.
Transferring the Balance to a 0% Card
The original borrower of the loan may move any remaining credit or loan debt to a balance transfercredit card. Typically, such cards have a 0%APRperiod between 12 and 18 months. That provides the borrower time to pay the balance without incurring interest. There may be a fee between 3% and 5% of what is transferred. However, some of the cards do have a waiver for a limited time, or they do not charge for one at all. Balance transfer cards also require good credit levels. Therefore, this is the best option for borrowers who have improved their credit since they obtained the loan.
Get a Loan Release
Some lenders provide release options for the co-signers. A release is possible after several on-timepaymentshave been made, and a credit check of the original borrower is conducted to determine if they are likely to finish payments. A check with the lender is also done to ascertain the requirements for qualifying for this option. The Consumer Financial Protection Bureauprovides samples the so-signer would use to request a release. In some cases, only the original borrower can apply for the release of the co-signer. Before taking the loan, asking the lender if they could include cosigner release options would be advisable.
Paying off the Loan
The most straightforward approach to remove the co-signer is to deal with the loan. That means meeting all of the financial obligations of the loan in one sitting. It nullifies the process and consequently removes the co-signer from their financial commitments. Alternatively, if the borrower is not making any payments and has not developed adequate positive credit enough to get a new loan, the co-signer may have to count their losses and pay the balance. Such a loss is aggravating and unfair; however, late or missed payments may hit the co-signer’s credit score. The co-signer will have to determine the bigger evil between paying off the loan balance or suffering from a dented credit score.
Selling the Asset
Individuals who have cosigned for a debt secured by an asset like a vehicle or a house, and the one borrowing cannot make their payments, can persuade the primary borrower to sell the asset to pay off the loan. Before deciding to go down that route, the debtor should not be upside down on their loan, which means they owe more than the car’s market value.Selling a vehiclewith negative equity will only alleviate part of the debt and remove the vehicle from the debtor's possession. If the car has positive equity, meaning it can be sold for more than what is owed, then it may bring additional money to purchase a downgrade vehicle. At least that way, one can still have a vehicle to get them from one point to another.
It should be understood, though, that it is not legal to force the borrower to sell an asset. As a co-signer, one only agreed to make payments if the primary borrower did not honor their obligation. The co-signer is not a joint owner of the asset linked to the debt, so they cannot make decisions about it.
Removal of the co-signer Name from a Credit Card Account
If there is no current balance on the account, a few credit card issuers are willing to remove the co-signers name. That is if the primary borrower has an adequate credit score. Either the co-signer or the borrower may call to inquire if this is a provided option.
Tips for Removal of a Co-signer
Making Timely Payments
The primary borrower needs to make their loan repayments on time. Aside from showing the lender they are dependable, it keeps them in good standing. Such reliability normally leads to credit score increases. Eventually, the borrower's credit score will improve and reach either an acceptable level or the same as that of the co-signer. At that point, a co-signer will be redundant.
Improving Financial Status
Before attempting to remove a co-signer, work on getting the finances in order. That strengthens the credit score and makes one more attractive to lenders. Lenders are also more flexible with borrowers who appear financially responsible. Prioritize making payments before the deadline and reduce the balance as much as possible. Diversification by seeking other income streams is another effective way to improve your finances over time.
Talk With the Lender
Each lender comes with a set of unique policies available to utilize. If removing the co-signer is urgent, the primary borrower may also opt to call their lender and ask about options. They might be amenable to considering an alternative.
As evidenced above, cosigning for someone does not have to be a lifelong commitment. Once the co-signer has been removed, ensuring the agreement has been terminated is advisable. Eliminating the debt does not necessarily do that, as the original account remains open. The borrower must close the account to remove the potential for further liability. Ultimately, co-signing is risky and requires consistent cooperation from the borrower.
