Can You Remove Someone From a Car Loan?
Learn how to navigate joint car loan responsibilities and find effective ways to manage or transfer shared financial obligations.
Removing someone from a car loan is a common desire, often due to changing relationships or financial circumstances. However, this process is not a simple administrative step. Joint financial obligations create a shared responsibility that lenders do not easily undo. This article explores practical methods to remove an individual from a car loan.
Understanding Joint Liability on Car Loans
When multiple individuals are listed on a car loan, they share joint liability. This means each party is fully and equally responsible for the entire debt. From the lender’s perspective, the loan is a single obligation, and they can pursue payment from any or all listed borrowers if payments are not made.
A distinction exists between a co-borrower and a co-signer. A co-borrower, also a joint applicant, shares equal ownership rights and loan responsibility from the outset. Their incomes and credit histories are considered for approval, and their names appear on the vehicle’s title.
In contrast, a co-signer agrees to take responsibility only if the primary borrower fails to make payments. A co-signer does not have ownership rights, and their name may not appear on the title. Both co-borrowers and co-signers are legally bound to the loan, making simple removal impossible without a new financial arrangement.
Preparing to Refinance the Loan
Refinancing a car loan means replacing the existing joint loan with a new one in a single individual’s name. The remaining individual must qualify for the new loan independently. Lenders assess factors like credit score, income, and debt-to-income (DTI) ratio. A good credit score improves the chances of securing favorable terms.
A strong income and a manageable DTI ratio are important. Lenders evaluate the DTI ratio, which compares total monthly debt payments to gross monthly income, to ensure the borrower can afford the new payment. Stable employment history also provides reassurance regarding consistent income.
Before applying, gather necessary documentation. This includes proof of income (pay stubs or tax returns), identification (driver’s license), proof of residence, and car insurance. Current loan statements, including the payoff amount and vehicle information (VIN and mileage), will also be needed.
Executing the Refinance Process
Once preparatory steps are complete, apply for the new loan. Applications can be submitted online, by phone, or in person. After submission, the lender reviews the application, documentation, and credit history to assess eligibility and determine loan terms. This underwriting process evaluates the lending risk.
Upon approval, the new lender presents a loan agreement outlining the interest rate, monthly payments, and repayment period. If terms are acceptable, the individual signs the new loan documents. Proceeds from this new loan are then used by the new lender to pay off the entire balance of the original joint car loan. This extinguishes the previous shared obligation, releasing both parties from the old debt.
Following the payoff, the vehicle’s title transfer process begins. The original lien holder releases their claim, and the new lender secures a new lien. The title is then updated to reflect the sole ownership of the individual who refinanced. This process takes a few weeks to a couple of months for all paperwork and title changes to be processed.
Alternative Strategies for Loan Resolution
Beyond refinancing, other methods resolve a joint car loan obligation. One approach is selling the vehicle. This involves determining the car’s market value. Next, obtain a payoff amount from the current lender, which is the exact sum required to settle the loan, including any accrued interest. This amount may differ from the remaining loan balance.
If the car’s sale price exceeds the payoff amount, the seller can keep the excess funds after the loan is satisfied. However, if the car’s value is less than the outstanding loan balance (negative equity), the seller must pay the difference out-of-pocket to clear the debt. When selling, the lender holds the title until the loan is paid in full, requiring coordination to facilitate title transfer to the new buyer.
Another alternative is paying off the loan in full. This involves one or both parties submitting the remaining loan balance to the lender. Request a final payoff quote from the lender, which provides the precise amount needed to close the account on a specific date. Once full payment is received, the lender releases the lien, and the vehicle’s title transfers to the owner(s) who paid off the loan. This method eliminates the loan entirely without incurring new debt.