How to Remove a Cosigner from a Car Loan
If you have bad credit or are just starting to build your credit profile, it can often be difficult to qualify for a car loan. Even if you’re approved for financing, it’s going to be challenging to receive a competitive interest rate or favorable loan terms. In these situations, it can often be beneficial to have a cosigner on your loan application.
A cosigner is a person with strong credit who takes on shared financial responsibility for your car loan. If you default on repayment of your loan, the cosigner will be legally responsible for making these payments, and their credit score can be negatively impacted when loan payments aren’t being made. Banks will often be more willing to take a risk on a borrower with poor credit or offer better rates if there is a cosigner since they will have greater confidence that the loan will be repaid.
While having a cosigner can be very helpful in securing an auto loan when you have poor credit, there may come a time when you need to remove the cosigner from the loan. Fortunately, there are several ways to accomplish this process.
Common Reasons to Remove a Cosigner from a Car Loan
There are several reasons why you may want to remove a cosigner from your car loan, including:
- Changes in your relationship status
- Changes in financial circumstances
- To protect the credit score of a borrower
Changes in Your Relationship Status
It’s common to have a spouse be a cosigner for your car loan if they have a stronger credit score than you. If you go through a breakup or divorce, your ex-spouse may want to be removed from the loan to avoid being financially responsible if you default on your payments.
Even when your cosigner isn’t a spouse, it’s possible for the arrangement to place a strain on your relationship with the individual. If your cosigner is a close friend or family member and your relationship has become damaged due to this additional financial obligation, removing the person as a cosigner can often help repair the frayed relationship.
Changes in Financial Circumstances
There may be instances where your cosigner falls on hard times financially, and being responsible for repaying your loan is simply no longer feasible for them. In this situation, removing them from the loan may help them through these challenging financial times.
Similarly, you may find that your credit score has significantly improved since taking out the car loan. This can occur from consistently making your loan payments on time, earning a significant raise at your job, or a variety of other factors. If this occurs, you may no longer need the cosigner on your loan. If your credit is now strong enough for you to carry the loan on your own, you may want to remove the cosigner.
Protecting the Credit Score of a Borrower
Everyone listed as a borrower can have their credit score impacted by the loan. If your cosigner needs to apply for a home mortgage, car loan, or any other personal loan, removing them from your car loan can lower their debt-to-income ratio, which can potentially raise their credit score and help them qualify for their own loan.
Keep in mind that removing a cosigner with a high credit score can potentially have a negative impact on your credit score, especially if you aren’t able to make your payments every month on your own. Before removing a cosigner, make sure you’re able to make your payments on time by yourself to avoid potential damage to your credit.
Removing a Cosigner from Your Auto Loan
There are several ways to remove a cosigner from your auto loan:
- Release the cosigner
- Pay off your loan
- Refinance your car loan
Release the Cosigner
You can contact your lender and request a cosigner release. This involves filling out paperwork which transfers the entire loan into your name. Keep in mind that this method isn’t always an option. Some lenders don’t want to let you release a cosigner since it increases their risk. Some lenders will allow a cosigner release without any restrictions, while others may place certain conditions on your ability to release the cosigner. These may include:
- Making a minimum number of monthly payments on time before qualifying for a release
- The cosigner cannot be the principal owner of the loan
- Your credit score must exceed a certain threshold
It’s always best to check the terms of your loan contract first to see if a cosigner release is a possibility.
Pay Off the Loan
The most straightforward way to remove a cosigner is to simply pay off the entire balance of the loan. This releases the cosigner of their financial obligation since there will be no more money owed on the loan.
While this is the option that requires the least amount of paperwork, it may not be a viable solution for everyone since you’ll need to have enough money on hand to pay off the balance of the loan. For many people, this simply isn’t the case.
If you are able to pay off the balance of the loan, make sure to check the terms of your contract since some lenders may charge a penalty for prepayment.
Refinance Your Car Loan
If you’re unable to release your cosigner and you can’t afford to pay off the balance of the loan, there is a third option. You can refinance your car loan. This process involves taking out a new loan that will pay off the balance of your existing loan and replace it with the terms agreed upon as part of your new loan.
Since refinancing replaces your existing loan with an entirely new one, this provides you with the ability to remove your cosigner. Keep in mind that you’ll need to be able to get approved for refinancing without a cosigner for this to be a practical solution. It’s often a good option if your credit score has improved since taking out your existing car loan and you’ve been making all your payments on time. It may also be an option if your debt-to-income ratio has become lower.
One additional benefit to refinancing is that you may be able to lower your interest rate, especially if your credit score has improved. If you can secure a better rate, it will reduce the overall amount of money spent over the lifetime of the loan and lower your monthly payments.
How Long Do I Have to Wait Before Removing a Cosigner?
The terms of your car loan will determine how long you have to wait before removing a cosigner. In some instances, your lender may require you to make a set number of on-time payments before they’ll allow you to release a cosigner. In other instances, there may be no time restrictions on when you can remove a cosigner.
If you’re planning on refinancing your car loan to remove the cosigner, it’s best to take the following steps prior to refinancing to increase your chances of getting approved and qualifying for a better interest rate:
- Improve your financial standing – Take steps to repair bad credit, and look for opportunities to increase your income. Lenders will view you as a better candidate for refinancing if you are able to demonstrate that you have the ability to make your monthly payments on time.
- Make your payments on time – While you’re taking steps to improve your credit score, it’s important to make your payments on time every month. This will help you demonstrate a track record as a reliable borrower and keep your account in good standing. This will make it easier to secure a new loan when you eventually try to refinance.
iLending Makes Car Loan Refinancing Easy and Hassle Free
If you’re considering refinancing your car loan to remove a cosigner, iLending can help. Our You First Approach™ makes the process easy and hassle free.
With our You First Approach™, you’ll be paired with a loan consultant who will discuss your goals with you in detail. If one of your goals for refinancing is to remove a cosigner, make sure to bring this up during your initial conversation.
Once your loan consultant understands your goals, we’ll compare options throughout our network of over 50 nationwide lenders to identify the best loans that address your needs. Your loan consultant will review the best options with you and answer any questions you may have before recommending the best solution to achieve your specific goals.
Once you decide on a loan, our team will handle the entire process for you. This includes filling out all the paperwork and following up with your existing lender to make sure your current loan is paid off properly. You’ll enjoy a smooth experience throughout every step of the process.
On average, customers save $133/month when they refinance a car loan with iLending. Not only will you be able to remove your cosigner, but you can also potentially infuse your monthly budget with a significant amount of extra cash that can be used to pay off other debts, make improvements on your home, save for a big purchase, take a vacation, or simply make it easier to pay your bills each month.
Apply now to get the car loan refinance process started.
What would you do with an extra $148* in your pocket?
