If you have an auto loan with a cosigner, you might be wondering what options exist for removing that cosigner from the loan.
Life is full of changes, both personal and professional. Perhaps you’re more financially stable, or maybe you had a falling out with your cosigner.
Whatever your reasons for wanting to remove a cosigner from an auto loan, we’ll discuss all your options, from asking your lender for a release to refinancing and everything in between.
Ask your lender for a cosigner release
Some auto loan contracts include a cosigner release, which can allow you to remove a cosigner from the loan. Before granting a cosigner release, lenders will usually want to see that you have a history of making your payments on time and that you’ll be able to continue making your payments.
Since you earned approval for the original loan terms with the financial backing of your cosigner, your lender might also decide you don’t qualify for the same terms you had on your previous loan. So, if you choose to ask your lender for a cosigner release, keep in mind that it could affect your interest rate and other loan terms.
Refinance
If your financial situation and credit have improved since you took out your loan, you can refinance your car loan without your cosigner.
When you refinance, you’re taking out a new loan to replace your previous loan, which means a new interest rate and a new set of loan terms.
You can refinance with your current lender whether it’s a bank, credit union, or just about any other lender that offers auto loans.
If you plan on refinancing to remove a cosigner from an auto loan, make sure your credit and income put you in a good position to qualify. You can improve your creditworthiness by increasing your income and credit score, decreasing your debt-to-income (DTI) ratio, and consistently making your payments on time.
These improvements take time, so as a general rule, you’ll want to wait at least one year before your try and refinance. If you apply for a refi when you don’t have the best credit or income, you could end up back at square one if the new lender will only approve your loan with a cosigner.
Use our auto loan calculator to determine how much car you can afford, and when you’re ready to refinance, check out our top choices for lenders to help you refinance your auto loan.
Sell the car
Selling your car is a simple way to remove a cosigner from an auto loan.
You don’t need to get permission from your cosigner to sell a car, but you will want to talk to your lender before selling your vehicle. You should also take the time to research your car’s value and decide whether you want to sell to a dealer or private buyer. Finally, it’s important to note that if your car is worth less than what you owe on the loan (this is known as negative equity), both you and your cosigner are responsible for the full loan amount.
For example, let’s say you sell your car for its market value of $25,000, but there’s a $27,000 balance remaining on your car loan. It doesn’t matter that you don’t own the car – you’ll still have to come up with a way to pay the $2,000 difference. If you don’t, your lender will hold you and your cosigner responsible for this debt.
Looking for more info on how to sell a car with a loan? We’ve got you covered.
Pay off (or transfer) the loan balance
If you have the money to pay off the loan balance, you can remove a cosigner by closing out the loan altogether. Contact your lender to get the loan payoff, which is the full amount you need to pay them to close out your loan so you can own the car free and clear.
An alternative to paying off the loan balance is to transfer the balance to a credit card. Before transferring your auto loan debt to a credit card, you need to verify that the credit card issuer and lender will allow it.
If you’re able to transfer the balance, it’s also important to recognize that you may end up paying additional fees, and that any debt you carry on your credit card is subject to the interest rate attached to your credit card. You might explore the option of avoiding paying any additional interest by opening a new credit card with a 0% introductory interest rate. Just make sure you can pay off the balance before the introductory period ends (typically between 12–21 months) or you’ll be stuck paying the normal interest rate.
Fixd Financial Tip: You might think paying off your car loan early will benefit your credit, but be careful. Sometimes, your credit score can drop when you close an account, even if you made all your payments on time.
FAQs
Is it possible to remove a cosigner from an auto loan?
It is possible to remove a cosigner from an auto loan by obtaining a written release from the lender, paying off the outstanding balance, refinancing the loan, or selling the car.
How soon can you remove a cosigner from an auto loan?
There are no laws restricting early removal of a cosigner from an auto loan, though your lender may charge a fee if you close out your loan early. You can technically remove your cosigner from an auto loan at any time if you pay off the loan, refinance, or sell the car.
Can a cosigner release themselves from an auto loan?
Cosigners cannot release themselves from an auto loan.
When a person agrees to cosign an auto loan, they are personally responsible for paying the debt if the primary borrower fails to do so. The only way for a cosigner to obtain a release from their obligations is through the primary borrower.
Will removing a cosigner from a loan hurt their credit?
In most cases, relieving a cosigner of their obligations to guarantee a loan is more likely to improve their credit score. However, it’s possible (though highly unlikely) the cosigner could see a drop in their score if the primary borrower has a long history of making on-time payments.
What rights to a car do auto loan cosigners have?
Cosigners on an auto loan don’t have any rights to the vehicle itself, even if the borrower defaults and the cosigner has to make the payments.
Cosigners shouldn’t be confused with co-borrowers. Unlike cosigners, co-borrowers are additional borrowers on the loan who share rights to the car.
Is the cosigner’s name on the car’s title?
The cosigner’s name does not appear on the car’s title.
Can a cosigner repossess the car?
A cosigner on an auto loan cannot repossess the car. Only the lender who holds the loan has a right to repossess the car.
What happens if I cosign on a car loan and the borrower doesn’t pay?
If a borrower defaults on their car loan, the cosigner is responsible for making payments on their behalf. Even after a vehicle is repossessed and sold, the lender can come after you and the cosigner for any money still owed (aka deficiency) if the sale doesn’t cover the full loan amount.
Who owns the car when there is a co-borrower?
When two people own a car, they are both considered co-borrowers. Each co-borrower is an owner with the rights to use the vehicle, and each co-borrower is responsible for paying back the loan.
Does the order of names on a car loan matter?
The order of names on a car loan does not matter.
Sources:
- Federal Trade Commission Consumer Advice. (2022, February 8). Cosigning a loan FAQs.
- Consumer Financial Protection Bureau. (2016, August 5). I was asked to Co-sign financing for a car. What am I being asked to do and what does this mean for me?
- McClary, B. (2017, August 28). Inoperable and repossessed car loan? Ask an expert. NFCC – National Foundation for Credit Counseling.
- Consumer Financial Protection Bureau. (2020, September 9). What is negative equity in an auto loan?
- Axelton, K. (2019, July 20). Does paying off a car loan early hurt your credit? Experian.
Jonathan is a writer with over 10 years of experience and a former insurance agent. Jonathan’s focus is to simplify personal finance and help equip you with the tools you need to make smart financial decisions. Despite the criticisms, he remains committed to driving a manual transmission and prides himself on smooth shifting, even in rush-hour traffic.
