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How to Remove a Cosigner from a Car Loan
Qualifying for an auto loan can be difficult for those without a high income or a good credit score, so many buyers need a cosigner. However, if having a cosigner later becomes unnecessary or the cosigner no longer wants the financial responsibility, then you may want to remove them from the loan.
Removing a cosigner can be done in a few ways, including transferring the debt to a credit card or refinancing. Read the following article for a breakdown of the process of removing a cosigner from an auto loan.
What is a Cosigner?
Lenders require that a borrower meets certain eligibility requirements, typically including a minimum income and credit score. However, if the borrower cannot meet these minimum requirements, a cosigner that does meet these requirements can jointly sign the loan. The cosigner, then, guarantees the loan and will take over responsibility for repaying the loan if the primary borrower is unable.
Can a Cosigner be Removed from an Auto Loan?
People’s financial circumstances can change radically, and sometimes having a cosigner is no longer necessary or tenable. In this situation, the primary borrower may wish to remove the cosigner from the loan.
You can remove a cosigner from an auto loan, and the best way to do so is by refinancing. If you have improved your credit score or income, or if you find a lender with lower eligibility criteria, you can refinance with more favorable rates. However, there are also other strategies that you can employ to remove your cosigner.
How to Remove a Cosigner
Removing a cosigner can be done in a variety of ways, including:
- Paying the Balanace
- Releasing the Loan
- Transfering to a 0% APR Credit Card
- Refinancing the Outstanding Balance
See the following section for a summary of some of the steps that you can take to remove a cosigner from your auto loan.
Pay the Balance
If possible, the simplest way to remove a cosigner from a loan is by paying off the balance of the loan in its entirety. This will release both the cosigner and the primary borrower from any further obligations to the lender. Even if you cannot pay off the entire balance, paying off most of the loan will drastically reduce the burden and obligations of the cosigner.
However, most people simply don’t have the option of paying off their auto loans in full.
Release the Loan
Certain lenders give co-signers a release option. While the terms of release can vary, obtaining a release typically involves making a certain number of on-time payments on the loan. Also, lenders will usually complete a credit check of the primary borrower to determine creditworthiness. So, you may not be eligible for a release if the primary borrower has a poor credit score.
Lenders are reticent in providing information about whether cosigner release is an option, so you will likely have to inquire directly with your lender. Take advantage of the sample letters for requesting a cosigner release that CFPB has posted on their website.
Transfer to a 0% APR Credit Card
Borrowers who can qualify for a 0% APR credit card can get one and use it to pay off their auto loans. 0% APR credit cards typically provide a 6-18 month period where you pay zero interest. Once the loans are paid off with the credit card, the entire debt will be in the name of the credit card holder borrower, and the cosigner will be released of obligations.
However, the borrower may have to pay a balance transfer fee of 3% or 5%, which can add up to a hefty sum.
Refinance the Outstanding Balance
You can release a cosigner from your original auto loan and potentially obtain better terms and rates than your initial loan by refinancing. Refinancing simply involves taking out a new loan and using those funds to pay off your auto loans. The new loan will be in the name of the primary borrower, and the cosigner for the previous loan will be released.
When Can a Cosigner Be Removed from a Car Loan?
A cosigner can, more or less, be removed at any point during the lifetime of a loan. How you choose to go about it and your financial situation — as in the case of refinancing the loan — may impact your ability to take advanatage of some options, though.
5 Best Personal Loans to Refinance an Auto Loan to Remove a Cosigner
Refinancing an auto loan to remove a cosigner can be an important step in achieving financial independence and potentially improving loan terms. Whether you’re looking to take full responsibility for your loan or adjusting to a change in financial circumstances, choosing the right lender is crucial. Let’s explore some lenders who offer personal loans that can be used for this purpose, each catering to different credit profiles.
AmOne (Best for Okay to Good Credit)
AmOne provides an effective solution for individuals with okay to good credit looking to refinance their auto loan and remove a cosigner. Their platform connects borrowers with a network of lenders, increasing the chances of finding a refinancing option that suits their needs. AmOne’s service is particularly beneficial for those who have maintained a decent credit history and are looking to take full ownership of their auto loan.
Spring Loans (Best for Bad Credit and No Credit)
Spring Loans caters to those with bad credit or no credit history who wish to refinance their auto loan and remove a cosigner. Understanding that credit history isn’t the only indicator of financial responsibility, Spring Loans offers a more inclusive approach. This can be particularly helpful for borrowers who might find it challenging to secure refinancing due to their credit status.
First Premier Lending (Best for Bad Credit)
For borrowers grappling with bad credit, First Premier Lending can be a viable option for refinancing an auto loan to remove a cosigner. They specialize in providing personalized loan solutions, taking into account more than just credit scores. Their approach can be ideal for individuals seeking to restructure their auto loan under their sole responsibility, despite past credit challenges.
Upgrade (Best for Good to Great Credit)
Upgrade is an excellent choice for individuals with good to great credit who are considering refinancing their auto loan to remove a cosigner. Known for their competitive rates and transparent terms, Upgrade can offer favorable refinancing options. Their straightforward application process makes it easier for borrowers with strong credit histories to achieve financial independence on their auto loans.
BestEgg (Best for Good Credit)
BestEgg is well-suited for borrowers with good credit looking to refinance an auto loan and release a cosigner. Their reputation for quick approvals and customer-friendly terms makes them a reliable choice. Borrowers can expect a smooth refinancing experience, potentially with better terms than their original auto loan, thereby simplifying their financial obligations and gaining sole ownership of their vehicle loan.
4 Benefits of Refinancing Your Auto Loan
Borrowers can get a range of benefits from refinancing their auto loans. See the following section for a few examples of how refinancing can save you money and stress.
1. You Could Lower Your Interest Rate
The interest rate that you get depends on the strength of your finances, as well as the policies of the lender. If you have improved your credit score or income since you took out your initial auto loan, you may get a better interest rate on your refinanced loan. A new lender may also assess your eligibility and finances differently, so it is worth investigating refinancing even if your income or credit has not improved.
2. You Could Lower Your Monthly Payment
One benefit of refinancing is that you can choose a repayment schedule for your loan that better suits your current financial circumstances. So, if your monthly payments are too high, by extending your repayment schedule you can lower them. While this will increase the total amount that you pay, freeing up some funds in the short term can be valuable.
3. You Could Change Lenders
Some lenders are unresponsive to customers or offer poor terms and rates. By refinancing, you can switch to a new lender with better customer service, and improve your loan terms.
4. You Can Release Your Cosigner
When you refinance, you pay off all of your old auto debt and start making payments on the new loan. Since the old loans are paid off, the cosigner of those loans will be released. The borrower who refinances then solely holds the obligation to repay the loan.