3 Ways To Remove A Car Loan Cosigner

When your credit score is less than perfect, or you’ve just begun building a credit profile, having a cosigner can help you get a car loan. But there are pros and cons to having a cosigner, and if your circumstances change over time or your credit score improves, you may want to remove the cosigner from your loan.

If that’s the case, there are three primary options: You can refinance, get a cosigner release or pay off the loan. Understanding each of these options can help you identify the best choice.

4 ways to remove a cosigner from a car loan

Having a cosigner on your auto loan gives your lender added assurance that you will pay off your loan. However, there are reasons you or your cosigner might want to remove the cosigner on your loan. There are three main ways to do this:

Refinance with a new lender

One way to remove a cosigner from a car loan is to refinance your auto loan. You will need good credit to qualify for refinancing, and scores in the 700 range usually secure the lowest rates, but many lenders will work with borrowers with scores of 600 or higher. In addition to solid credit, you will need a steady payment history on your current auto loan.

Be aware that there could be fees involved in refinancing, and it can take time. A new loan provider may charge an application fee, while your current lender may charge an early termination fee. Not all lenders charge fees, so it’s important to compare lenders and compare auto loan rates. Depending on the lender, refinancing can take anywhere from a few hours to a few weeks.

Request a cosigner release

A cosigner release is paperwork that removes your cosigner from your loan and makes you, the primary borrower, the sole borrower on the loan. Not every lender offers a cosigner release option, so it’s important to ask about this prior to accepting your loan. Importantly, your lender may adjust your current loan terms if you release your cosigner, particularly if your approval was dependent on your cosigner’s good credit.

You can request to remove a cosigner by:

1. Asking your lender about its process for releasing cosigners.
2. Completing any required paperwork.
3. Receiving documentation for the approval or denial.

Your lender may require proof of income (such as pay stubs or bank statements) and a credit check before approving your cosigner release. Typically, you must wait 12 to 24 months before releasing a cosigner so that you can show a solid repayment history.

Keep any documents you receive in a safe place until your loan is repaid. Provide your cosigner with a copy of the cosigner release for their records.

Pay off your car loan

The most painless way to remove a cosigner is to pay off the car loan. This will rid both the primary borrower and the cosigner of responsibilities for the loan. If necessary, you can pay off your auto loan early to release your cosigner faster, but this typically involves repaying the current loan balance plus the payoff amount. Contact your lender for specific details on your loan.

Some lenders may charge an auto loan prepayment penalty when you end a loan ahead of schedule. This fee is often about 2 percent of the remaining loan balance, making it important to weigh the cost of the prepayment penalty against the amount you stand to save by refinancing. You will improve your odds if you go into negotiations prepared to justify your case.

Repaying your auto loan early could cause your credit score to decline temporarily. This is because having a mix of credit types on your credit profile helps improve your credit score. When you eliminate an installment account like a car loan, you reduce your overall credit mix. However, the impact on your credit score is typically very short-lived.

Sell your car

Trading in your car can release your cosigner from your auto loan. In this scenario, you offer your vehicle to a dealership, which pays off your existing loan — and sometimes a little extra, if you have positive equity. Because the loan is paid off, your cosigner is released.

If the value of your trade-in is equal to or greater than your loan balance, then your loan is resolved. However, if the trade-in value is less than the balance you owe, you will need to pay the difference or take out a new loan to cover it.

Another option is to sell your car privately. You can use the money from the sale to pay off your auto loan, releasing both you and your cosigner from your loan. Again, if you sell your car for less than you owe on your loan, you will have to cover the remaining loan balance. And whether you trade in your vehicle or sell it privately, you may need your cosigner’s signature to complete the transaction, especially if they are on the car title.

Reasons to remove a cosigner from a car loan

There are a few reasons why you would remove a cosigner from your auto loan, such as:

• Improved credit: Your credit score will improve as you make payments on your car loan, making your cosigner unnecessary. But check with your lender to ensure your score has improved enough to receive the same interest rate on your current loan without your cosigner.
• Relationship change: If your relationship with your cosigner has changed — for example, you are divorcing a spouse who cosigned a loan for you — then a cosigner release is the best way to legally remove them from the loan.
• Protecting their credit: If you’re struggling to pay for your auto loan, removing your cosigner can protect their credit. Removing them can also reduce their debt-to-income ratio, making it easier for them to qualify for credit when they need it.

Does removing a cosigner impact your credit score?

It depends on your credit history. If you’ve worked hard to improve your credit score to the point you can qualify alone and receive the same or a comparable interest rate, then the impact it will have is minimal. If you plan to refinance, you might experience a slight dip in your credit score due to a hard inquiry by the new lender.

However, if you still have a lower credit score when trying to remove the cosigner, it might place you on the hook for a car loan with a higher interest rate. This won’t hurt your credit on its own, but with a higher interest rate, you’ll have larger monthly payments.

If your budget is tight, this could create a situation where you’re more likely to miss or be late on a payment. Therefore, make sure to take a thorough and honest look at your finances before deciding whether to remove the cosigner.

Bottom line

The removal of a cosigner can be time-consuming, so it’s best to think before agreeing to a cosigned loan. You should only go ahead with a removal in very specific circumstances.

If you decide to remove a cosigner, research the options to identify which approach makes the most sense. If you’re considering refinancing or obtaining a cosigner release, review your credit score and payment history to make sure you can qualify for a loan on your own.

Frequently asked questions

• Can you switch cosigners on a car loan?
  

  While you can ask your lender about switching cosigners, this is not standard practice. Most lenders will encourage you to refinance instead. During that process, you may be able to drop your existing lender and add a new one.

• Can you remove a co-borrower from an auto loan?
  

  You can remove a co-borrower from an auto loan in two ways:

  1. Refinance the loan: Take out a new loan in your name alone and use it to pay off your existing loan.
  2. Loan assumption: Ask that your co-borrower be removed from the loan. Not all lenders allow this, but if your lender agrees, then the process will likely involve underwriting and a credit check. You may also be asked to show evidence that you can afford the payments on your own. This will likely require your co-borrower to agree to being removed from the loan.

• How can you remove yourself as a cosigner on a car loan?
  

  If you need to get out of a car loan and have been unsuccessful in negotiating with the other person, then you may have to resort to voluntary legal action. In some cases, a court may order the sale of the vehicle and divide the money from the sale between you and the other person.

  Legal action can be expensive and time-consuming, so whenever possible, it’s best to settle things outside of court. Since laws vary by state, it’s important to consult a lawyer before taking any other action.

• What are your options if you co-borrowed a car loan?
  

  A co-borrower holds equal responsibility with the other borrower for a vehicle loan. If you’d like to remove yourself from this financial obligation, there are various options, including:

  • Pay off the loan: If you have the money available, you can contact the lender and pay the agreed-upon amount.
  • Sell the vehicle: When you sell the vehicle, you and the other borrower are completely removed from the loan.
  • Refinance the vehicle: By refinancing the original loan used to purchase the vehicle, the co-borrower can have an entirely new loan and you can remove yourself from being involved.

• How can you get a car out of your name if the other person isn’t cooperating?
  

  Any potential solutions rely on you and your cosigner or co-borrower communicating and agreeing on what to do. But that may be impossible if you need to exit a loan because of a relationship breakdown or another challenging situation. However, a legal agreement like cosigning or co-borrowing a loan doesn’t end when a relationship does.

  If you are going through a divorce, make sure to consult your divorce lawyer about handling the auto loan. Your separation agreement can lay out a course of action, along with consequences if one party or the other doesn’t stick to the agreement you reached.

  It can also be helpful to examine the vehicle title to determine the best course of action. If the loan is joint, it will say “or” or “and/or.” These small conjunctions give you the power to sign as the owner of the vehicle.