When you cosign a car loan, you agree to share joint financial responsibility for the debt with the primary borrower. If the primary borrower is unable to make their car payments, the lender will expect you to repay the loan. And as a cosigner, your credit score could suffer damage from any late payments or loan default even if you never drive the vehicle yourself.
A lender might ask you to add a cosigner to your car loan if you have a bad credit score or lack sufficient income to qualify for the loan on your own. But there could come a time in the future when you want to remove the cosigner from your loan.
The bad news is that removing a cosigner from an auto loan isn’t always as simple as adding one in the first place. But if you’re determined, there are three possible ways to accomplish your goal. You can see if you’re eligible for a co-signer release from the lender, pay off the loan, or attempt to refinance the auto loan into your name alone.
Depending on your situation, it may be possible to remove a cosigner from an auto loan. However, just because removing a cosigner is sometimes possible doesn’t mean doing so will be a simple task. Below is a closer look at the three potential ways to remove a cosigner from an auto loan.
The easiest way to remove a cosigner from your auto loan is typically to refinance the loan into just your name. Refinancing a car is the process of taking out a new auto loan to pay off the original debt. Often the new loan comes from a new lender, though it’s sometimes possible to refinance with your original lender as well.
Of course, to refinance your car loan without a cosigner you’ll need to find a lender that’s willing to approve you on your own. Bad credit, low income, or a high debt-to-income ratio (DTI ratio) could make qualifying for an affordable auto loan on your own a challenge.
If you know that refinancing an auto loan into your name alone is a future goal, you may want to work on improving or building your credit. Paying down debt, especially high-interest credit card debt might also work in your favor. When you pay down credit card debt it can reduce your DTI ratio and potentially improve your credit score by lowering your credit utilization ratio.
Another way to release a cosigner from their financial obligation is to pay off the loan. This solution also protects the credit reports and scores of the cosigner since there would be no additional outstanding loan payments to worry about making on time.
Of course, most people don’t have the extra cash lying around to simply pay off their auto loans in full. So, while paying off an auto loan might be the easiest way to release a cosigner from their obligation, it’s probably not the most realistic solution.
In rare cases, lenders may add clauses in their auto loan agreements that include cosigner releases. If your loan agreement features a cosigner release clause, you may be able to request the removal of a cosigner from your car loan after making a certain number of payments on time and satisfying other criteria.
The steps you take to remove a cosigner from your auto loan will vary depending on the strategy you use. Below are some helpful tips to guide you through your options.
It’s easy to understand why someone might want to add a cosigner to their auto loan. Getting a car loan with bad credit or income limitations can be difficult. But if you add a cosigner with good credit in these situations, you may have more (and often more attractive) loan options.
According to Experian, borrowers with the highest credit scores (aka super prime borrowers with credit scores of 720 or higher) were paying interest rates of a little over 5% on new car loans during the first quarter of 2023. By comparison, deep subprime borrowers, those with credit scores of 579 and below, were paying over 14% on average for the same new car loans.
Yet after the fact, there could be several reasons why you might want to remove a cosigner and switch a car loan over to your name only instead.
When you ask a family member or friend to cosign for your car loan, you probably have every intention of making your payments on time. But if a job loss, sickness, injury, or even poor budgeting habits causes you to fall behind on your bill, it’s not just your personal credit scores that could suffer from any late payments that take place. Your cosigner’s credit scores could suffer damage as well.
The Federal Trade Commission does recommend asking the lender to send you a copy of the monthly loan statements if you decide to co-sign. You can also ask the lender to notify you if the primary borrower misses a payment or if the terms of financing change. This might give you the opportunity to catch up on missed payments yourself if the primary borrower fails to keep up with the financial obligation, and hopefully protect your credit (to at least some degree) in the process. However, there’s no guarantee you can force a lender to honor these requests.
Because cosigning is risky, it’s best to avoid this type of arrangement whenever possible. And if you already have a cosigner on your car loan, working to improve your own credit so you can refinance it into your own name may be best for the long term relationship with your family member or friend.
Another reason a cosigner might want you to remove their name from an auto loan is because they want to borrow more money in the future. As a cosigner, your auto loan will appear on their credit report.
That debt will have an impact on their debt-to-income ratio if they attempt to apply for a new loan. As a result, they’re likely to qualify for lower loan amounts for themself in the future until your car loan is paid off or you find a way to refinance or release them as a cosigner.
It’s common for couples to cosign for one other on car loans, mortgages, and other types of financing. However, if there’s a change in the relationship status and the couple breaks up, a joint auto loan usually no longer makes sense.
Protecting your credit and finances during a divorce can be complicated. But one of the first steps after a break up is typically to separate shared credit obligations, including cosigned loans. Often in these situations, the person who’s keeping the car will try to refinance the loan into their own name if the vehicle is financed and paying off the loan isn’t an option.
As the cosigner, removing yourself from a car loan can be difficult, especially if you’re attempting to do so without the other party’s cooperation. To attempt to remove yourself as a cosigner, you would need to follow the same basic steps detailed above.
You could try to:
If the options above fail or the primary borrower is unwilling to communicate with you, you could also consider hiring an attorney and attempt to find a resolution in court. Keep in mind this could be costly with no resolution if the borrower has no means to make the monthly payments, they may not be able to pay you. You will be paying on the auto loan and attorney fees.
Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).
Our goal at Self is to provide readers with current and unbiased information on credit, financial health, and related topics. This content is based on research and other related articles from trusted sources. All content at Self is written by experienced contributors in the finance industry and reviewed by an accredited person(s).
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