Can You Switch Cosigners on a Car Loan?
Explore practical ways to release or replace a cosigner on a car loan. Understand the process and what impacts your options.
A cosigner on a car loan acts as a financial guarantor, lending their creditworthiness to the primary borrower’s application. This arrangement often helps secure favorable loan terms or enables approval when the primary borrower’s credit history alone might not suffice. While directly “switching” a cosigner on an existing car loan is not a standard process, established methods exist to remove or replace an original cosigner.
Possibility of Changing a Cosigner
A cosigner’s involvement is integral to the original loan agreement, as lenders assess the combined financial profiles of both the primary borrower and the cosigner to mitigate risk. Loan approval and terms are based on this dual commitment, making direct substitution complex. Simply removing or replacing a cosigner is not a quick change on paper.
Instead, changing a cosigner involves a new evaluation of the primary borrower’s financial standing. The lender needs assurance that the primary borrower can independently meet loan obligations without the original cosigner’s backing. This process releases the original cosigner from their obligation, often requiring qualification for a new loan or meeting specific conditions set by the current lender. The primary borrower’s current creditworthiness and income stability are key to success.
Methods for Changing a Cosigner
Refinancing the existing car loan is the most common method for removing a cosigner. This process involves securing a new loan, either solely in the primary borrower’s name if they qualify, or with a different cosigner if needed. The new loan then pays off the original loan, releasing the initial cosigner from their responsibility. Applying for a refinance loan includes a review of the primary borrower’s credit history, current income, and debt-to-income ratio, similar to the initial loan application.
Some loan agreements may include a specific cosigner release clause, though this is less common. This provision allows cosigner release after certain conditions are met, such as a specific number of consecutive on-time payments or improved primary borrower credit score. Borrowers should review their original loan documents or contact their lender to determine if such a clause exists and its criteria. Lenders may require proof of income and a credit check to approve a cosigner release, often after 12 to 24 months of consistent payments.
Another way to remove a cosigner’s obligation is by selling the vehicle and using the proceeds to pay off the outstanding loan balance. While this does not involve a “switch” in the traditional sense, it extinguishes the loan and the cosigner’s responsibility. This option is viable when the car’s market value is sufficient to cover the remaining loan amount. If sale proceeds are less than the loan balance, the primary borrower must cover the difference to fully release the cosigner.
Key Factors for Success
The primary borrower’s creditworthiness influences the success of removing a cosigner. A strong credit score, typically in the good to excellent range (e.g., FICO scores of 670 or higher), indicates lower risk to lenders. This improved credit profile, coupled with stable income and a manageable debt-to-income ratio, makes it more likely for the primary borrower to qualify for a new loan independently or meet cosigner release criteria.
A consistent history of on-time payments on the current car loan is another important factor. Lenders view a diligent payment record as evidence of financial responsibility and reliability. This positive payment history builds trust and can be a factor when a lender evaluates a request to release a cosigner or approves a new refinance loan. Many lenders require a certain period of on-time payments, such as 12 to 24 months, before considering a cosigner release.
Lender policies vary regarding cosigner releases and refinancing options. Borrowers should communicate directly with their current lender to understand available programs and requirements. Some lenders may not offer a cosigner release option, making refinancing the only viable path. The vehicle’s market value relative to the outstanding loan balance, often called loan-to-value ratio, also plays a role, particularly in refinancing or selling the car.