How to Remove a Cosigner From a Car Loan and Title
If your poor credit is preventing you from securing a car loan, using a cosigner may be the perfect solution. With the help of a cosigner, you could purchase a car and work toward rebuilding your credit. But what if circumstances change and you no longer want to have a cosigner on your car loan? And what if the cosigner is also on the car title, so you want to remove them from your title as well? We’ll answer those questions for you here.
What’s the Role of a Cosigner?
The role of a cosigner is to help when a person can’t obtain a car loan on their own because their credit is too low. If someone is using a cosigner, the lender will consider the credit history and income of both the borrower and the cosigner when determining loan approval. This can be a good way for borrowers with poor credit to qualify for loans they couldn’t qualify for on their own.
However, cosigning involves “guaranteeing” the debt. This means that if the original borrower fails to make payments on the debt, the cosigner becomes responsible for the balance, so they’re taking a risk,
Before cosigning a loan, a cosigner should be sure they’re able to comfortably make monthly payments if necessary. Cosigning on the borrower’s debt may affect the cosigner’s credit health, credit utilization ratio, and ability to secure other credit opportunities.
How to Remove a Cosigner From a Car Loan
If, for whatever reason, you’ve decided you no longer want a cosigner on your loan, there are several things you can do to remove them from the loan.
Refinance the Car Loan
If your financial status has changed and you’ve had time to rebuild your credit, refinancing can be a great option. When refinancing, you essentially pay off the original loan by obtaining another auto loan, and it can be solely in your name. This option only works if your credit and income are high enough to secure a new loan.
It’s important to note that the terms of the new loan may vary. For example, you may see different loan terms and new interest rates, which means the amount of your monthly payments will likely change.
If your cosigner also happens to be on the car title and you’d like to remove them from that as well, you can do this as a part of the refinancing process through the Department of Motor Vehicles (DMV). You’ll both need to sign a change of title form and return it for processing. You can check online or call your state’s DMV for details and forms.
See If You Have a Cosigner Release Option
Some car loans include conditions that remove the cosigner’s obligation after a specified number of on-time payments are made by the primary borrower. This release isn’t automatic. You must contact your lender directly and complete the appropriate paperwork to officially remove the cosigner from your loan. If you’re unsure if this is an option, talk to your lender and check any loan documents you have.
The cosigner release option is probably one of the easiest methods of taking a cosigner’s name off a car loan. Keep in mind, however, that removing the cosigner from the loan may impact the terms of the loan, including interest rates. Be sure to ask your lender about any changes prior to requesting a cosigner release.
Pay Off the Loan
If you have the funds available, you can simply pay the remainder of the car loan off. This step instantly ends you and your cosigner’s financial obligation. Be aware that some lenders do charge prepayment penalties for paying the loan off early, though, and make sure to take this factor into consideration when determining if this is the right option for you.
On the other hand, if you’re struggling to make your monthly payments or you want to purchase a new car, you can consider selling your car. This option works best if you can sell the car for more than your loan balance. Otherwise, you and your cosigner will still be responsible for paying the balance on the auto loan.
Trade the Car In
If you’ve taken steps to rebuild your credit and you’re ready to purchase a new car, you may be able to trade your current car in for a new one. If you qualify for a new loan, this could be another way to release the cosigner.
When trading a car in to purchase a new one, the auto dealer determines how much it will pay for your current car. This amount is then applied to the cost of your new car. If your car’s trade-in value is higher than the remaining balance on your loan, the difference is deducted from the purchase price of the new car. If the trade-in value is lower than the remaining balance of your loan, the difference is applied to your new auto loan. In either situation, your current auto loan is paid in full.
How to Remove a Cosigner From a Car Title
If your cosigner also happens to be on the car title and you’d like to remove them from the title in addition to the loan, you can do this at any time through the Department of Motor Vehicles (DMV). You’ll both need to sign a change of title form and return it for processing. You can check online or call your state’s DMV for details and forms.
Removing a cosigner from your car title and auto loan is possible, but it does require action on your part. Before you decide which option might be right for you, you may want to use Credit.com’s Free Credit Score and Free Credit Report Card to get a better idea of where you stand.
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