4 Ways to Remove a Co-signer From a Car LoanNovember 3, 2023
Car loans can be a big financial burden. To make it less risky and get better loan terms, many people choose to apply for car loans with co-signers.
A co-signer is someone with good credit who takes on the legal and financial responsibility for loan payments if you can't make them. Both parties share equal responsibility for the loan, and the co-signer is fully aware that their signature makes them accountable for the entire amount owed. In simple terms, it's a person you trust to cover your debts if you can't.
Co-signers or guarantors are commonly required when the primary borrower faces challenges like a poor credit history, a low credit score, income below the lender's threshold, unemployment, or self-employment. Having a co-signer improves the chances that the lender or creditor will recover their funds if the borrower is unable to repay the loan.
Yet, there might come a time when you find yourself in a situation where you want to take a co-signer off a car loan. This could be because of financial difficulties or a variety of other factors. In this blog, we’ll discuss how you can take a co-signer off a car loan and explore the steps involved in this process.
Is it possible to remove a cosigner from a car loan?
Yes, it’s possible, but it's not always a straightforward process. Lenders typically prefer having a cosigner since it provides an additional layer of security in case of payment issues.
When you decide to remove your cosigner, you'll become solely responsible for all the monthly payments, which can make some lenders hesitant to approve the change. To remove a cosigner, you may need to demonstrate improved financial stability or an enhanced credit score compared to when you initially obtained the loan.
How to remove a co-signer from a car loan
1. Refinance the loan
To remove a co-signer from your car loan, one effective method is to refinance the loan. This process involves obtaining a new loan to cover the remaining balance. You can secure this new loan either from the same lender or by transferring the balance to a different lender.
Refinancing always involves completing a fresh loan application. If your application for refinancing is approved, you have the opportunity to have only your name on the new loan contract, effectively eliminating your co-signer's legal and financial responsibilities.
Many borrowers opt for refinancing to secure a more favorable deal than they initially had when they purchased their car. It's not only a means to remove your co-signer, but it can also lead to reduced payments and a lower interest rate.
2. Show your creditworthiness
Typically, the lender will ask the primary borrower to prove that they are financially stable enough to take on the full responsibility of the car loan. This means demonstrating the ability to make on-time monthly payments and having a consistent source of income. To assess your eligibility, the lender may request recent pay stubs, bank statements, or other financial records.
Before trying to remove a cosigner, focus on improving your credit score as much as possible. Lenders tend to be more accommodating to borrowers they perceive as financially independent and reliable. Make it a priority to pay all your accounts on time, reduce your outstanding balances, and explore opportunities to boost your income.
3. Pay off the loan amount
If you have the funds to clear your loan entirely, you can explore this choice to eliminate your cosigner. This may involve making a one-time, lump sum payment or a series of monthly payments to bring your balance down to zero. Paying off your auto loan not only frees you from the obligation but can also result in cost savings by reducing the interest paid over the loan's term. Once the loan is fully paid, your cosigner is no longer linked to it.
Reach out to your lender to discuss early loan repayment because different lenders have varying policies regarding this. Some may even impose an additional fee for early repayment.
4. Sell your car
Selling your car and using the proceeds to settle your loan not only relieves both you and your co-signer of the obligation but also provides the flexibility to either trade up to a newer model or downsize to a more affordable option based on your requirements.
Eliminating a co-signer from your car loan requires thorough planning, effective communication with your lender, and meeting specific eligibility requirements. By showcasing your creditworthiness, exploring loan refinancing, and maintaining consistent payments, you can effectively remove a co-signer from your car loan.