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Having a cosigner on your car loan can be useful, especially if you have little or no credit or less than stable employment. However, as your financial situation changes, you may find you no longer need a cosigner. Whether you experience a change in your relationship, creditworthiness or finances, you might reach a time when you need to remove your cosigner from your loan. Here’s what you’ll need to know about cosigner release.
Yes, it’s possible to remove a cosigner from a car loan. Although, many banks and lending institutions prefer you to keep your cosigner, because it provides reassurance that their loan to you will be repaid.
That said, you should review your loan documents carefully to know for sure what options there are for cosigner release. Some methods are faster than others, which could also affect your decision. Make sure you know the difference between a cosigner vs. joint auto loan, too. A cosigner only helps with the loan, while a co-borrower is jointly responsible for both the loan and the car.
You can remove a cosigner from your auto loan in three ways.
Refinancing a loan with a cosigner is one way to remove them from your loan. When you refinance, you take out an all-new loan, paying off the old loan in the process. You can use this opportunity to make sure the new loan is in your name only. Because the old loan is paid off, your cosigner is released from their obligation to repay that debt.
Refinancing could save you money if you qualify for a lower interest rate or shorter terms. However, it’s possible that the new loan could be more expensive than what you paid with a cosigner. Take the time to compare auto loan refinance offers to make sure you choose an option that works with your budget.
You may be able to request a cosigner release, which is when the lender removes the cosigner from the loan for you. Even if your loan agreement allows this possibility, the lender doesn’t have to grant the cosigner release if they think it’s too risky. In other words, if they’re worried you’re not financially stable enough to repay the loan on your own, they may require you to keep your cosigner.
Whenever you want to add or remove a co-borrower from an auto loan, you should speak to the lender to see what their process is. You may need to complete a certain number of payments to be eligible for a cosigner release on an auto loan.
If a cosigner release is available, the lender can tell you what forms you’ll need to fill out to transfer the loan to your name only.
The simplest way to remove a cosigner is to pay off your loan. This fulfills the terms of your loan and releases your cosigner from any legal or financial obligations related to it.
If you have the cash, you can contact your lender to find out your payoff amount and then make the payment. If you don’t have the funds on hand to pay the loan in full, you could sell the car and use the proceeds to repay the loan. With either method, you and the cosigner will be free of the loan and can move forward with other plans.
Borrowers might want to remove a cosigner for any number of reasons.
For some people, a loan arrangement with a cosigner that worked in the past may not be ideal once the relationship changes. When a couple divorces, for example, they may no longer want to share responsibility for a car loan. Refinancing after divorce means one person can be responsible for the car loan, and the other is free from that financial obligation.
Many people add a cosigner to their car loan application to bolster their odds of approval, especially if they don’t have great credit. But after a few years of timely auto loan payments, your credit score may have gone up. In that case, it might be a great time for a refinance or cosigner release. Carrying the loan in your name alone could be the next step in your path to financial independence.
Unfortunately, when one person experiences financial hardship, the fallout can damage the cosigner as well. For instance, if you miss payments on your car loan, it can hurt your credit and your cosigner’s credit. A cosigner release can prevent your troubles from harming your cosigner, and perhaps protect your relationship, too.
Adding a cosigner to your car loan can often help you get approved, because lenders know there’s someone else who can take over payments if you fall behind. The flip side is that you’ll need to show the lender you can handle it on your own if you want to remove a cosigner from a car loan.
Lenders will be more likely to authorize a cosigner release if you can show:
When you’re ready to remove a cosigner from an auto loan, RefiJet can help. Our auto refinance options could help you lower your payment, remove a cosigner or even get a new interest rate.
To get started, just fill out our online form with a few details about yourself, and a financial services representative will help you complete your application. There’s no hard credit inquiry at this stage, so there’s no impact to your credit unless you decide to move forward. You can see your refinancing options and choose the best fit for your situation.
Here are some of the most frequently asked questions about removing a cosigner from an auto loan.
The main people who need to agree to a cosigner release are the primary borrower and the lender. Once the cosigner is released, their obligations are released as well.
It depends. If you are refinancing, it’ll take a few hours to a few weeks for your application to be approved. If you are requesting a cosigner release, the lender may require you to make a certain number of payments first.
You can request to be removed as a cosigner, but the final say rests with the lender. They’ll need to approve the main borrower as the only borrower, and in the end, they may decline to allow it.
Yes, your score may rise if you’re no longer cosigning for a car loan. The more debt you have, the higher your debt-to-income ratio. If you get rid of a sizable amount of debt (like a car loan), your DTI will go down, which can help your credit score.
There are other methods to remove a cosigner from a car loan aside from refinancing. You could ask the lender for a cosigner release if you can handle the payments yourself. Or you could sell the car and use the proceeds to pay off the loan, freeing your cosigner.
If the proceeds from the sale are enough to pay off the loan, the cosigner is released. If there’s still a balance due even after selling the car, then you’ll need to discuss your options with your cosigner and the lender.
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