Are you stuck in a cosigned car loan and wondering how to get out of it? Being a co-signer on a car loan is a serious responsibility. If you are not the primary borrower, it can be challenging to manage the monthly payments, especially if the primary borrower faces financial difficulties.
Considering the details of how a cosigned car loan works is crucial. A co-signer agrees to take on the financial responsibility if the primary borrower fails to make the payment. In this guide, we’ll explore how to manage this situation and provide some helpful tips on how to get out of a cosigned car loan.
Cosigned Car Loan
A cosigned car loan is an agreement where a co-signer agrees to back the primary borrower’s loan. The co-signer is responsible for the loan if the borrower defaults on the monthly payment. This is a common arrangement for those with poor or no credit, where the co-signer has better credit history and can help the borrower qualify for a loan. By agreeing to cosign, the co-signer shares the financial risk, but also helps the borrower get access to better loan terms and conditions.
How Does Cosigned Car Loan Work?
When you cosign a car loan, you are essentially guaranteeing the loan if the primary borrower can’t make the payment. The lender considers the co-signer as an additional safety net. The loan balance must be repaid by either the primary borrower or the co-signer if there’s a default.
Over time, if the loan is paid on time, the co-signer’s credit history may improve, but if payments are missed, it can negatively affect both parties. Getting a new loan or seeking a co-signer release is often the best way to end the shared responsibility.
Main Borrower vs. Cosigner
The main borrower is responsible for the car loan’s payment history. The co-signer agrees to share the financial responsibility if the borrower cannot make the car payments. If the co-signer misses a payment, both their credit report and the borrower’s credit report are affected.
The co-signer does not own the car but is liable for the cosigned loan if the borrower defaults. A cosigner plays a critical role in securing the loan. Learn more about the criteria that make a good cosigner.
Reasons to Remove a Cosigner from a Car Loan
Why You Might Want to Remove a Cosigner
Many people want to remove a co-signer from a car loan when they are ready to take full responsibility. Removing the co-signer helps both parties separate their financial obligations. It can also make it easier to get approved for new loans or credit without worrying about the co-signer’s involvement.
If the payment history is solid, you may qualify to have the co-signer removed. If refinancing is not an option, consider exploring in-house financing with car dealers to manage your car loan more effectively
Impact of a Cosigner on Your Credit Score
A cosigned loan can affect your credit report negatively, especially if the co-signer has a poor payment history. Even if you make all your car payments on time, the co-signer’s missed payments can lower your credit score. This is why some borrowers seek to remove a co-signer as soon as possible.
The presence of a co-signer might also impact your ability to get approved for other loans, including a student loan or new car loan. It’s essential to consider how the co-signer might affect your credit report and financial future.
Ways to Remove a Cosigner from a Car Loan
How to Refinance the Loan and Remove a Cosigner
If you would like to remove a co-signer on a car loan, one option is to refinance the car loan. Refinancing can help you replace the current loan with a new one. Once the new loan is approved, you can have the co-signer’s name removed from the agreement.
This process requires you to prove your ability to handle the loan payment on your own. Before refinancing your auto loan, use our Loan Calculator to determine your monthly payments and explore your new loan options.
Steps to Pay Off the Loan and Release the Cosigner
- Another way to remove a co-signer is by paying off the loan balance.
- If the primary borrower’s credit improves or the loan balance is low, it may be easier to get approved for a new loan.
- You can make loan payments diligently and reduce the balance to a point where the lender feels comfortable removing the co-signer.
- Once the loan is paid down or paid off, the lender may be willing to release the co-signer from the financial responsibility.
Cosigner Release Options with Your Lender
Some lenders offer a cosigner release option. If you have made regular loan payments and the loan is in good standing, you can contact the lender to ask for a cosigner release. This option allows the co-signer to be officially removed from the loan without needing to refinance the loan without a co-signer. The lender will typically require proof of consistent payment history and may also check your credit report to ensure you can handle the loan payment on your own.
Can You Sell the Car to Remove a Cosigner?
Selling the Car: A Way to Remove the Cosigner
Selling the car is not the best way to get a co-signer from the loan removed, but it can help in some cases. If you like to remove the co-signer, selling the car allows you to pay off the current loan. Once the loan is paid off, the co-signer will be released from the financial responsibility. However, this method may only work if the car’s value is enough to cover the loan term and remaining balance.
Fate of the Car Title After the Sale
After selling the car, the co-signer will no longer be part of the loan. The car title will transfer to the new owner after paying the loan. The co-signer on the loan will no longer have ownership or financial ties to the vehicle. The lender removes the cosigner and name of the loan after clearing the balance. The process requires you to work with the lender to ensure the cosigner will release from the loan after the sale.
Managing a Car Loan with a Cosigner
How a Cosigner Affects the Main Borrower’s Loan
Having a cosigner on a loan can significantly affect the primary borrower’s financial responsibility. The loan could become more manageable for the borrower since the co-signer helps secure better terms. However, the borrower must also understand that if they fail to make loan payments, the co-signer is equally responsible. Cosigning a loan means loan term will affect both parties and their payment history, so both must stay committed to the agreement.
The Risk of Borrower Default on a Cosigned Car Loan
The biggest risk of a borrower defaulting on a cosigned car loan is that the primary borrower and the co-signer are both responsible for the loan. If the primary borrower fails to make payments, the co-signer must step in. This can harm both parties’ credit scores and make it harder for them to get a loan in the future.
Refinance the Loan to Get a Cosigner Off the Loan
Meanings of Refinancing and How Can It Help?
Refinancing means replacing the current loan with a different loan that has new terms. If you want to remove a co-signer, refinancing can be a good option. By refinancing, you can pay off the car loan and possibly qualify for a new loan without needing a co-signer. This option helps cosigner to get off the hook and release their responsibility from the loan. It also might offer better interest rates for the primary borrower.
How to Refinance Your Auto Loan to Remove the Cosigner
To refinance the loan, you need to decide to remove the co-signer and prove that you can handle the car loan on your own. Start by checking your credit score to see if you can qualify for a new loan without the cosigner. Next, apply for a different loan to pay off the original loan in full. If approved, the new loan will cosigner off the hook and remove them from the loan entirely.
Alternatives for Removing a Cosigner from a Car Loan
If You Can’t Remove a Cosigner Right Away
If you can’t remove the co-signer right away, you still have some options. One option is to continue making regular payments on the existing loan. After making consistent payments, you may qualify for a co-signer release option from the lender. This release allows you to remove the co-signer once the borrower makes enough payments and proves they can handle the loan for someone without help. Agreeing to cosign doesn’t have to be permanent, as long as the co-borrowed auto loan is in good standing.
Getting a New Cosigner
If you need to remove your co-signer but can’t do it right away, you might consider getting a new co-signer. The new co-signer can help you qualify for a loan on your own. The lender will review your original loan and see if adding a new person can ease the balance along with the payoff. You’ll need to submit the necessary paperwork that removes the co-signer and adds a new one. This process can make it easier to move forward without depending on the original co-signer.
Final Thoughts:
Getting out of a cosigned car loan is possible, but it requires some effort. Whether you want to drive the car alone or pay off the loan early, there are options available. The best way to proceed may involve refinancing or seeking a co-signer release option.
If that’s not possible, consider other methods like getting a sole borrower loan or offering the lender a settlement to clear the balance. Remember that the co-signer is legally responsible for the loan until you officially remove them, so communicate with your lender to explore all your options.
FAQ’s:
Can I remove myself as a cosigner on a car loan?
You can remove yourself as a cosigner, but it depends on the lender and loan terms. This may require the primary borrower to refinance or fully repay the loan. Some lenders allow cosigner release after consistent on-time payments.
What happens if the primary borrower fails to make payments on the cosigned car loan?
If the primary borrower misses payments, you, as the cosigner, must cover the loan. This can impact your credit, and the lender may contact you for repayment. Stay in touch with the lender and ensure timely payments.
Can I sell the car to pay off a cosigned loan?
Selling the car can help pay off a cosigned car loan, but ensure the sale covers the remaining balance. If it doesn’t, you’re still responsible for the rest. Check with the lender for the payoff amount before selling.
