How to remove a cosigner from a car loan

When your credit score is less than perfect, or you’re just starting to build a credit profile, having a cosigner can help you get a car loan. But if your circumstances change over time or your credit score improves and you would like to remove the cosigner from your loan, there are three primary options. You can refinance, get a cosigner release or pay off the loan.

Options for removing a cosigner from a car loan

Having a cosigner on an auto loan is a great way to get approved by lenders if your credit score is less than ideal because it gives your lender added assurance that you will pay off the loan. However, those with added financial responsibility alongside the main borrower may want to exit for various reasons.

Refinance

One way to remove a cosigner is to refinance your auto loan. You’ll need to take out an entirely new loan, possibly with a different lender. When you do this, the old agreement is closed, and you start from scratch with a new loan that won’t be attached to the cosigner anymore.

Refinancing can also be an opportunity to lower the interest rate on your car loan or even the monthly payment by extending the loan term.

Keep in mind that in order to gain approval for a refinance you will need to have been making your monthly payments on time and have good to excellent credit.

Seek a cosigner release

To get a cosigner release you will first need to contact your lender. After contacting them, you can request the release — if the lender offers it. This is just paperwork that removes the cosigner from the loan and places you, the primary borrower, as the sole borrower on the loan.

One of the drawbacks to this approach is that your initial loan term and interest rate may be impacted. This is especially true if your approval was dependent on your cosigner’s good credit. If the cosigner is released from the loan, your lender may adjust your current terms. You will also have to show a history of timely payments before the lender agrees to release the cosigner. It’s also important to note that not all loans include a cosigner release option, so it’s wise to look into this prior to agreeing to a loan.

Pay off the car loan

The most painless way to remove a cosigner is to pay off the car loan. If the removal is due to financial strain, this may not be the most practical option, but paying off the loan in full will rid the responsibility of both the primary borrower and the cosigner.

To do this, you will be expected to pay off the current loan balance along with the payoff amount. You will have to contact your lender for the specific repayment methods, especially if the pay-off timeline is earlier than initially agreed upon.

Reasons to remove a cosigner

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

• Relationship change: Perhaps you had a spouse or significant other cosign the loan. Over time, your relationship status changed, and now you want them off the loan.
• Improved credit: Your credit score improves as you make timely payments on your car loan. After a few years, it can reach the point where you’re around the same credit score as your cosigner, thus nullifying their reason for being on the loan. Remember that you’ll want to check with your lender beforehand to ensure you’ll receive the same interest rate as your current loan.
• Protecting their credit: If you experience financial hardship, you might miss a car payment. Missed payments show up on your credit history as well as your cosigners. That’s why it’s important to be proactive if this happens. That way it doesn’t impact their credit. Another reason to remove them is because the debt affects their credit score. Your auto loan impacts their debt-to-income ratio. Removing them from the loan can lower this ratio, making them a better candidate when they want to apply for credit.

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 standalone on the loan 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 the hard pull of your credit histories.

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.

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 to 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 an owner of the vehicle.

Bottom line

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

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