Several circumstances can have you looking into how to remove a co-signer from a car loan.
As a borrower, the sole reason to include a co-signer on the loan is that you don’t meet the requirements to qualify for the loan on your own at that given moment.
You may or may not know that lenders are risk averse, but they will happily lend you money if there’s a co-signer with a good enough credit score to take on full responsibility for the debt.
Being a risky borrower will hurt your ability to release the co-signer, but fortunately, there are actions you can take to skip some of the rules stopping you from doing so.
Even though it is sometimes a bureaucratic and time-consuming process, you can easily remove the co-signer from the car loan once you learn how the process works.
How to Remove a Co-signer From a Car Loan?
The first step is to either contact your lender or to go through the entire loan agreement in order to find out if there’s a co-signer release clause.
If your overall financial condition has improved ever since you’ve committed to the loan, chances are that you just need to file a co-signer release form and deliver it to your lender (some lenders require a minimum number of monthly payments).
When your lender doesn’t include a co-signer release form as an option, the following steps are the most effective to take care of the release as quickly as possible:
- Refinancing the loan – Refinancing presents the opportunity to pay off the loan containing the co-signer in its entirety by applying for another loan to top it off. Ideally, you should aim to refinance when you’re sure you can afford to shorten the loan’s lifespan by making higher monthly payments, leading to paying less in interest rates, therefore, saving more money down the road.
- Selling the car – Selling the car can leave you in a tricky spot due to vehicle depreciation, most vehicles lose value as soon as they leave the forecourt and unless you own one of the few cars appreciating in value, you’ll be selling at a loss. Make sure to have some money set aside to settle whatever value is still left on the loan after you sell the car. If it’s an old loan with most of the monthly payments shaved off, you should be profiting from selling the car if it’s still in good shape.
Any of these steps will require you to be in good financial shape. Removing the co-signer when your financial conditions have worsened over time will be next to impossible.
Why Would I Want to Remove a Co-Signer From a Car Loan?
Situational changes happen whether you like it or not. You may want to remove the co-signer from the car loan because you’re cutting ties with this person.
Your co-signer can have other projects which require financing and may need to have his or her credit score set apart from yours to apply for a loan of their own.
You may want to remove the co-signer because you’re no longer in a bad financial condition and want to be independent, or maybe you want to have some peace of mind in regards to this person being responsible for your debt.
No matter what backs up your will to remove the co-signer, it’s more often than not a wise choice.
Do I Need My Co-Signer’s Consent?
In most cases, there is no need for consent in order to remove him or her from the loan. You’ll be doing your co-signer a favor by moving forward with the release process.
Nobody wants to be held accountable for another person’s debt. The sole reason why co-signers accept the burden is because they care for the borrower.
What Rights Does a Co-Signer Have on the Car?
Unlike a co-borrower, a co-signer doesn’t have any rights over the car. The co-signer can’t even take possession of the car if the borrower defaults on the loan payments.
Simply put, the co-signer is “only” a financial guarantor for whenever the borrower feels like bailing out on responsibility.
Can I Remove Myself as a Co-Signer on a Car Loan?
If you’re walking in the co-signer shoes, your chances of removing yourself from the loan without the borrower’s cooperation are slim. It’s up to each specific lender and the terms of the agreement whether this is a possibility.
Most lenders will certainly not let you off the hook as a co-signer while unsure if the borrower has enough financial power to cover the payments.
Alternatively, you can ask the borrower to find a new co-signer but, in this case, a new loan agreement may be required which isn’t always convenient.
Does Removing a Co-Signer Affect my Credit?
Removing a co-signer will not directly affect the borrower’s credit in a negative way.
However, if the borrower needs to refinance the loan in order to remove the co-signer, his or her credit score will temporarily drop a few points. Given enough time, it should recover as long as there’s no violation of the loan’s terms and conditions.
Both the co-signer and the borrower’s credit score become entangled when the loan starts rolling. If the borrower starts missing payments, both credit scores will start to sink. Once the co-signer is removed, both credit scores will return to their original separate state.
If you’re the borrower, your co-signer’s credit score will be affected by your actions.
On the other way around, your co-signer’s actions will have no effect on your credit score as the borrower. Your lender may want to renegotiate the loan terms if your co-signer starts to present risky behavior though.
The Bottom Line
You can easily learn how to remove a co-signer from a car loan. However, this doesn’t mean that removing the co-signer isn’t a time-consuming process.
In order to remove the co-signer from the car loan, you need to either pay the loan in its entirety or find yourself in a better financial stance than before.
Your lender needs guarantees that monthly payments will keep rolling once the co-signer is gone. You can give them these guarantees by improving your credit score and later on request a co-signer release, or alternatively, to refinance the loan entirely.
You don’t need to be in a hurry to remove the co-signer if you’re driven by fear of their ability to repossess the vehicle if you miss your payments. A co-signer doesn’t have any rights over the vehicle.
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