Can a Co-signer Be Removed From a Car Loan?

Removing a co-signer from a car loan is often possible, though the process depends on several factors. A co-signer serves as a guarantor, agreeing to take responsibility for the debt if the primary borrower fails to make payments. This arrangement helps the primary borrower secure financing when their credit profile might not be strong enough.

The co-signer’s credit history and financial standing are considered by the lender, which mitigates the risk. Being a co-signer impacts their own financial ratios and credit, making their removal a common goal once the primary borrower’s financial situation improves.

Evaluating Eligibility for Co-signer Release

Lenders assess several conditions for co-signer release. A consistent and timely payment record on the car loan is required, often for 6 to 24 months or longer.

The primary borrower’s current credit score is also a factor, as it must meet the lender’s solo-borrower requirements. A FICO score of 670 or higher is generally considered good. For new car loans, average approved scores are 730-750, while for used cars, they range from 675-685.

Lenders also evaluate the primary borrower’s debt-to-income (DTI) ratio, which compares total monthly debt payments to gross monthly income. Many auto lenders prefer a DTI below 36%, though some may approve loans up to 45% or 50%.

Stable and sufficient income is required to cover monthly payments without co-signer support. Some lenders also have requirements regarding the loan’s age or vehicle equity, often not considering refinancing until the loan has been open for at least six months.

Methods for Co-signer Removal

Several pathways exist for removing a co-signer from a car loan. One common method is refinancing the car loan. This involves obtaining an entirely new loan solely in the primary borrower’s name, which then pays off the original loan, thereby releasing the co-signer from their obligation.

The refinancing process typically requires a new application and approval, with the new loan terms based on the primary borrower’s current creditworthiness.

Some lenders offer co-signer release programs. These programs allow for the direct removal of the co-signer from the existing loan, without the need for a new loan.

Eligibility often depends on a period of consistent on-time payments by the primary borrower and meeting updated financial criteria set by the lender. Not all lenders provide this option, and those that do often have stringent requirements, such as 12 to 48 months of consecutive on-time payments.

Another method for co-signer removal involves selling the vehicle. If the car is sold and the proceeds are sufficient to fully pay off the outstanding loan balance, both the primary borrower and the co-signer are released from their financial obligation.

This option completely extinguishes the debt, eliminating the need for a co-signer or a new loan.

Steps to Initiate Co-signer Release

Initiating the process to remove a co-signer from a car loan begins with contacting the current loan provider. The primary borrower should inquire about their options for co-signer release or refinancing, as policies vary between lenders.

This initial communication helps clarify the available pathways and the lender’s particular requirements. Following initial contact, the lender will request documents to evaluate the primary borrower’s financial standing. These commonly include:

Proof of income, such as recent pay stubs or tax returns.
Identification, like a driver’s license.
Proof of residence, often a utility bill or lease agreement.
Current loan details, including the payoff amount and vehicle information like the VIN and mileage.

Once necessary documents are gathered, the primary borrower will complete an application provided by the lender. This application, whether for a co-signer release program or a refinance, formally requests the lender’s review of the borrower’s financial qualifications.

The application process may involve a credit check, which will be solely on the primary borrower’s credit report. After submission, the application undergoes a review process by the lender. This involves assessing the provided documentation and running credit checks to determine if the primary borrower meets the criteria for sole responsibility of the loan.

The lender will then notify the borrower of their decision, detailing whether the co-signer can be released or if the refinancing application has been approved.