- 1 Can You Remove a Cosigner from a Car Loan?
- 2 Can You Cancel a Cosigner Relationship?
- 3 How to Remove Yourself as a Cosigner on a Loan
- 4 Can a Cosigner Be Removed from a Car Loan?
- 5 Can a Cosigner Be Removed from a Car Loan?
- 5.1 Refinancing May Help You Remove a Cosigner and Save You Time, Money, and Sanity.
- 5.1.1 The End of One Relationship Can Mark the Beginning of a New Relationship – With Your Car
- 5.1.2 What are the risks of keeping a divorced spouse on your lease?
- 5.1.3 Refinancing is the Smart Solution
- 5.1.4 Are there any other options besides auto refinancing?
- 5.1.5 Your Credit Scores Should Be Free. And Now They Are.
- 5.1 Refinancing May Help You Remove a Cosigner and Save You Time, Money, and Sanity.
Can You Remove a Cosigner from a Car Loan?
So, you’ve had your car loan for some time now. You decided you want to remove the cosigner and take on the loan by yourself. There aren’t many options to choose from, but, with careful planning, it can be done through refinancing.
Refinancing a Car Loan to Remove a Cosigner
We aren’t lenders, so Auto Credit Express can’t refinance car loans. But what we can do is give you some tips on the process of refinancing a car loan.
Generally, lenders like to see at least two years of consistent payment history before refinancing a vehicle loan, allowing you to remove the cosigner. If your car loan hasn’t hit the two-year mark, the chances you’ll be able to refinance your vehicle are slimmer.
In the meantime, there are things you can do to prepare for it:
- Income – Have your income or bills changed? If so, you’ll want to make sure you’ll meet a lender’s debt to income (DTI) ratio and payment to income (PTI) ratio requirements. If your income has increased, great. If not, you may have trouble getting approved. A good tip: use an auto refinance calculator to see how much money you’ll be saving by refinancing.
- Credit – Building your credit back up is one of the most important things to do before refinancing an auto loan as the primary borrower. Improving your credit will increase your chances of getting approved.
- Your loan payments – Making on-time payments with your current loan will show lenders you're serious about repairing your credit. If you have any missed payments, your chances of getting refinanced are slim to none.
- Be aware of additional fees – Make sure you understand the potential extra costs that come with refinancing a loan. Lenders may charge you to change the title. If you have negative equity, you will probably have to pay the difference between the current loan balance and the actual cash value (ACV) of your vehicle.
You can typically only remove a cosigner from an auto loan by refinancing your vehicle. Plan ahead and make sure you’re prepared when it’s time to refinance the loan.
If you’re looking into financing a car loan, but aren’t sure where to start, let Auto Credit Express lead the way. We work with a nationwide network of special finance dealers who have the lenders willing to work with people in difficult credit situations. Get started today, so we can match you with a local dealer. Simply fill out our online auto loan request form to start the process .
Can You Cancel a Cosigner Relationship?
by Amanda McMullen
When you're young and have a limited credit history, you may use a cosigner to qualify for a car loan, student loan or mortgage. However, after you and your spouse reach a point of financial stability, it may be beneficial to cancel the cosigner relationship. The method you must use for removing the cosigner depends on the type of loan he cosigned.
When an individual agrees to cosign a loan, he promises to pay the balance of the loan if the borrower is unable to do so. In most cases, a cosigner agrees to be responsible for a loan because the borrower doesn't meet the lender's qualifications. For this reason, lenders are reluctant to release the cosigner from the obligation unless the borrower's income or credit score has improved enough to qualify him for the loan on his own.
Few lenders will remove a cosigner's name from an existing mortgage or car loan. To cancel the cosigner relationship, typically you must refinance the loan without including the cosigner. To complete the refinancing, you and your spouse must show that your income and credit rating is sufficient to qualify you for a new loan equal to the balance remaining on your existing mortgage or vehicle loan. When the refinancing is complete, your cosigner will be free of any obligation to pay your debt.
Many student loans have a cosigner release clause, which allows the cosigner to be released from his obligation if the borrowing student makes the loan payments on time for a certain number of months. You may also remove a cosigner from a student loan by refinancing it. Just as with a mortgage or car loan, you may not refinance a student loan without the cosigner unless your income and credit score meet the lender's requirements.
If you are unable to qualify for refinancing of a mortgage, car loan or student loan on your own but you need to remove your cosigner, you may be able to obtain a new loan with a different cosigner. Cosigners may also be able to cancel their obligations to repay a loan through bankruptcy. However, the bankruptcy will lower the cosigner's credit score.
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.
How to Remove Yourself as a Cosigner on a Loan
When applying for a loan, you may need to have a cosigner, depending on your lender or creditor and their terms. A cosigner is somebody who signs an official document, like a loan agreement, with another person. They take equal responsibility for the loan and the cosigner understands that when he signs, he becomes liable for the full amount owed. Having a cosigner increases the probability that the lender or creditor will get their money back; in case the person receiving the loan is unable to pay it off.
Cosigners are usually required when the person applying for the loan:
- Has a poor or no credit history
- Has a low credit score
- Doesn’t have the minimum income required
- Is unemployed
- Is self-employed
- Is a student with an inadequate credit history
Most of these situations represent a high level of risk for the lender. A cosigner helps take away part of the risk and increases the likelihood of approval. The cosigner becomes responsible for any payments that are not made.
What Happens when your Co-signer Declares Bankruptcy? Read this.
Let’s say you co-sign a friend’s or family member’s loan and then after a few months start to regret your decision. Here are a few of the ways you can go about removing yourself as a cosigner.
If you want to remove yourself as a cosigner, the borrower must refinance their loan to change the terms of the loan agreement. You can refinance between each term throughout the duration of your loan. Changes include removing cosigners and possibly even reducing their interest rate. This will decrease the borrower’s monthly payments, thus helping them pay off the loan faster. This can be applied to most types of loans and is the most favorable option, especially for loans with large balances.
If you want to remove yourself as a cosigner before the loan has been fully paid off, the borrower needs to improve their credit rating so they handle the loan on their own. To help the borrower improve their credit rating, they can implement the following steps:
- The borrower should pull their credit report (for free once a year).
- Discover which problems are impacting the borrower’s credit rating, did they miss a payment? Is their credit score too low?
- The borrower should concentrate on one or two issues and develop a plan that can help them improve their credit rating.
Keep in mind that this option may be difficult to accomplish. The reason you had to cosign the borrower’s loan in the first place was because they didn’t have good enough credit to get approved on their own.
If you need to be removed as a cosigner on a loan because of your own financial needs, you could kindly ask the borrower if they could make extra payments in order to pay off the loan faster.
If you have cosigned for a secured loan, such as a car loan, you could ask the borrower to sell the asset. If the borrower is unable to make his payment, they could sell the car and pay off the loan completely. Thus, you would no longer be a cosigner.
If the borrower hasn’t been able to make payments for a while and still hasn’t improved their credit rating enough to be approved for a new loan or credit card, it may be time to close the account. Even though you’ll need to pay or transfer the balance, it may be worth in order to remove your name.
Need more information about what it means to co-sign a loan? Click here.
As you can see, even though it’s not impossible to remove your name as a cosigner, being a cosigner is still very risky. If you don’t know the person well, do not cosign. If you don’t have full trust in the person, do not cosign. If the borrower has lost their job but really needs a loan, do not cosign. These are all simple examples that can leave you in debt for years. You do not want to be responsible for somebody else’s debt, as you will lose money and your credit score could be negatively affected. Despite how important it may be for the borrower, always think of your financial needs first.
Can a Cosigner Be Removed from a Car Loan?
Can a Cosigner Be Removed from a Car Loan?
Refinancing May Help You Remove a Cosigner and Save You Time, Money, and Sanity.
Relationships are complicated and unfortunately there may come a time when it is smart to protect your finances. Marital separation or divorce – of people and their finances – is one of those times.
The aftermath of separating finances and property can be just as hard as saying goodbye. But if your auto loan outlives the life span of your relationship, there is an easy solution that doesn’t require a lawyer – or therapist.
Refinancing your auto loan is the simplest way to remove that ‘we-shall-not-name’ person from your car loan, as well as set you up with a lower interest rate.
The End of One Relationship Can Mark the Beginning of a New Relationship – With Your Car
Let’s say Michelle and Robert bought a car together as soon as they got engaged but didn’t quite make it down the aisle. It turns out that Michelle drives the car much more frequently and is comfortable making payments by herself. It’s a much cleaner separation from Robert if she finds a new auto loan altogether.
Loretta Hutchinson, President of Financial Divorce Plan and a certified divorce financial analyst recommends, “Although I rarely recommend unmarried couples signing a loan together, if there is no marriage contract there should be a separate written personal contract outlining each parties responsibilities…this may avoid some he said, she saids.”
Especially, if you don’t have that written contract, refinancing is the answer.
What are the risks of keeping a divorced spouse on your lease?
SCENERIO ONE: Let’s say Michelle and Robert did make it down the aisle, and now their financial separation is a bit messier. Even though Michelle takes the car, Robert agrees to make the rest of the car payments after the divorce. Three months after the divorce, Robert gets disgruntled and decides to stop paying without notifying Michelle. Now Michelle’s credit is affected, and she has a harder time financially in her new life.
As a Certified Financial Planner, Hutchinson has seen this real life Michelle and Robert situation, when a client’s finances were affected because the spouse who had agreed to pay the remainder of the loan in her name became unhappy with the rest of the divorce process and stopped making payments.
Hutchinson advises, “If you are responsible for payment of a loan or lease and your name is on the contract, make sure you can afford the payment on your own as well. Should anything happen, you can keep up the payments and your credit score will not be affected by someone else’s unwillingness to keep up their part of the financial burden.”
SCENERIO TWO: Michelle and Robert made it down the aisle, financial separation is ominous, so they decide she will take the car AND make the payments. All is fine for a few years, but then she decides to sell the car, Robert has remarried and won’t answer her calls. They still owe on the car loan. To sell the car, she has to have his signature. How can she sell the car now?
Michelle should have refinanced the vehicle or settled this outstanding loan in the settlement, but now she’s left with one arm tied behind her back.
Refinancing is the Smart Solution
Luckily, refinancing an auto loan can be easy. In any situation, Michelle takes the following steps:
She gets in touch with IFS and fills out a car loan application.
IFS finds the best deal for Michelle, even lowering her payments and interest rate.
Michelle signs a few documents and the new loan is complete…
Without Robert’s name on the loan.
Michelle drives off into the sunset with her car (and a carton of ice cream).
Are there any other options besides auto refinancing?
When a loan is made, it’s guaranteed to both people on the contract. Other options to remove a name from your auto loan can be as complicated as the split. There is always the option to pay off the rest of the loan if finances are stable. But this can lead into another arena of debate – who will pay it off? Will one ex-spouse owe the other money?
Another not so pretty option is bankruptcy. This is an extreme route, and in some instances may not even guarantee a name-removal from the loan.
According to Jeffrey A. Landers, a certified divorce financial advisor and best-selling author of DIVORCE: Think Financially, Not Emotionally®, “Adding the amount of lease/auto payments to alimony is a smart way to ensure those payments will be made because alimony payments are almost always nondischargeable in bankruptcy.”
People’s emotions are hard to count on sometimes. But managing your credit’s future is easier than you think. If you are ready to refinance your car loan, apply today.
Innovative Funding Services (IFS) specializes in auto refinance. When you apply with IFS, your dedicated Finance Advisor will search for a refinance auto loan that meets your needs from our network of 25+ national lenders. We offer up to 100% financing for those with credit scores of 525 to 850.
Learn more about car loan refinance, see how much you may be able to save with our auto refinance calculator, or, if you are ready, apply to refinance through IFS now.
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No. The only thing that you can do is to have the primary person apply for a new loan in only their name once their credit has improved enough. It all depends on that persons credit profile, but they may have to have on time payments for at least a year before some lenders may consider refinancing the loan.
TryingToUnderstand's response was:
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The answer depends on a few factors, most notably - why was the cosigner requested in the first place? If the primary borrower has a track record of not paying their bills, there is a good chance the financial institution will not like the risk of taking off the cosigner. Also, does the primary borrower make enough money to make the monthly payments on their own with their other obligations?
The only way to find out is to have the primary borrower apply for a refinance, either with the same lender or a different lender in their own name. However, banks prefer to see payments over a 12 month period, not 6. Also, you can not just walk in and state you want to be taken off. Yes, dealerships will tell you otherwise, but their job is to get you to sign the papers so they can make the sale, very few of them actually understand how the financing aspect works.