How to Get a Cosigner Off of a Car Loan
May 13, 2019 | June Mckaig
Being a cosigner for a car loan is like playing the chaperon to a field trip, but with money. You are responsible for the person you sign for, and if that person defaults, that loan is on you. It’s sort of like a one-sided partnership, so you really have to be careful choosing who you decide to cosign for. But let’s switch the perspective a little, shall we?
What if you are the party who has taken out the loan, and no longer want or need the supervision of a cosigner? Whether it’s a divorce, a child becoming independent from his or her parents, or a friend wanting to no longer rely on another friend—removing a cosigner from your car loan can get tricky. Let’s got over a few tips that might make this process a whole lot easier.
1. Releasing a Cosigner from a Loan
Let’s try the straightforward approach first. Some dealerships or lenders allow for a cosigner to be released. Once a number of payments have been made on time by the borrower, ask the lender if they would allow for the cosigner to be released from the contract—you can also check any loan documents you have to read the fine print concerning the matter. The borrower will need to demonstrate proof of good credit and an ability to repay the loan, meaning a recent paystub to show income. This will likely be the cleanest, quickest way to remove your cosigner; however, frequently this might not be an available option. The borrower probably needed a cosigner in the first place because of a lack of credit, so while you may have made the appropriate payments thus far and have income, you might not yet be attractive enough in the eyes of the lender, which leads us to the next option.
2. Refinance the Car Loan with an Installment Loan
Refinancing can be a useful tool, especially involving building and saving credit. The same can be said for removing a cosigner from the equation of your loan. This option would involve quite a bit of research into alternate loans, including their term of length, APR, borrowable amount, and whether or not they come from a respectable company. You will want a new loan that covers the expense of the old one, and with a reasonable interest rate that you can manage. If you are able to find one that satisfies this, then you can pay off your car loan from the dealer, thereby removing the cosigner from the responsibility of paying it, and focus on the new loan on your own.
One of the biggest hiccups in this option is this: presumably you required a cosigner on the initial loan because you didn’t have the required credit and income. If this is the case and you haven’t yet jumped into a better credit range, then you will probably have a very difficult time finding a new lender with decent terms. If this is the case, you will need to work on bettering your credit score before attempting this option, which will take time.
Why Refinancing with an Installment Loan Works
What are the benefits of refinancing your auto loan? Well, you have some serious potential in finding a better interest rate if you haven’t sunk your credit score. Why is this important? Your interest rate is extra money on top of what you owe, and the higher it is, the more money you lose. Let’s say that you owe $20,000 on your auto loan and your interest is 6% over the span of 60 months. You will be paying $333 a month towards your loan, and approximately $53 extra in interest, making your total payments on interest $3,199.
Now let’s say you refinance that loan for 3% interest, and because you’re more financially stable than before, you will be paying off your loan over 36 months instead. The total interest you will be paying on that loan equals $938—you can see, by speeding up the timetable and reducing the rate, you’re saving around $2,000 that can go towards your long-term savings. There are lots of tools on the internet that can assist you in seeing the big picture and understanding how big of an impact refinancing can have on your money situation, such as this refinance calculator
Use a Credit Card to Refinance
If you are able to open up a new credit card that has 0% APR for the first year, then this might be an even better option than refinancing with a new loan. If you have access to a credit card with no interest, then you will most certainly save money in the long run as opposed to making payments with interest on a loan; however, if you have calculated your expenses and find you will not be able to pay off the credit debt over the interest-free months, then you might wind up paying even bigger interest rates than before. Once your newbie credit card has expired its 0% APR time, the interest on it will be likely larger than that of a loan—it’s important to consider this, and balance transfer fees, when considering using a credit card to refinance.
3. Cut Your Losses and Sell
If you want to remove your cosigner from your loan, a last ditch effort you can also pursue is to sell the asset. If you are able to sell the car and make enough money to pay off the loan, you can take whatever financial loss that came previous to that in order to end the whole ordeal. A good thing to keep in mind if you consider this option is your state’s requirements for transferring the ownership of a car to another party. DMV requirements involve a rather long list you will need to check off, so take a look at that before you do any of the selling. Please also remember you will likely make more off of selling your car if you actually know the value of it, and you might make more if you sell it on your own, as opposed to trading it in or through another dealership or used car shop.
Know that if you are going through the grueling trials of a divorce, and if there isn’t a more amicable way of dealing with a car on loan, you can also consider a Petition for Judicial Sale in lieu of Partition if your ex is on the title of the car; however, before moving past just speaking with your soon-to-be ex-spouse, it might not be a bad idea to seek advice from a lawyer.
Cosigners and Signers: It Goes Both Ways
Whether you’re the one with the car under a loan trying to go independent from your cosigner, or whether you’re the cosigner no longer wanting to be responsible for a loan, these tips help both parties in the event of dropping a cosigner from a car loan. The best option before doing anything would be to speak with each person involved before coming to a decision, that way there is no confusion during the process. Don’t be afraid to ask the lender questions if you are confused with any of the terms on your loan, and always make certain you have a copy of the agreement on hand.