Can You Take a Cosigner Off a Car Loan?

A cosigner on a car loan shares financial responsibility for the debt. Lenders often require a cosigner when a primary borrower has insufficient credit history, a low credit score, or inadequate income, to mitigate risk and approve the loan. This assures the lender that payments will be met. While a cosigner can facilitate financing, many primary borrowers eventually seek to remove them. Removing a cosigner is possible, but challenging, depending on the primary borrower’s improved financial standing and the lender’s policies.

Assessing Your Eligibility

Before a cosigner can be removed from a car loan, the primary borrower must demonstrate a significantly improved financial profile. Lenders evaluate several key factors to determine if the borrower can manage the loan independently. A strong credit score is fundamental, with many lenders looking for a score of at least 600 for refinancing, and scores over 700 generally securing the most favorable terms. This improvement since the original loan application signals enhanced creditworthiness.

Lenders also scrutinize the borrower’s income and debt-to-income (DTI) ratio. They need to see stable and sufficient income to cover loan payments without the cosigner’s support. The DTI ratio, which compares total monthly debt payments to gross monthly income, is a key indicator; most auto lenders prefer a DTI of 43% or lower, though some may accept up to 50%. Consistent on-time payments on the car loan and other debts are also important, as a strong payment history is often a prerequisite for cosigner removal.

The loan-to-value (LTV) ratio of the vehicle also plays a role in eligibility. This ratio compares the outstanding loan balance to the car’s current market value. A lower LTV, ideally below 100%, indicates that the car’s value sufficiently covers the loan amount, which reduces risk for the lender. An LTV above 100% means the borrower owes more than the car is worth, a situation known as being “upside down,” which can make approval more difficult.

Refinancing Your Loan

Refinancing the car loan is a primary method for removing a cosigner, replacing the existing loan with a new one solely in the primary borrower’s name. This process involves applying for a new car loan to pay off the original. The mechanics are similar to obtaining the initial car loan.

To begin, seek quotes from various financial institutions, including banks, credit unions, and online lenders, to compare rates and terms. The application process typically requires submitting personal and financial documentation. Required documents often include:
Proof of income (e.g., pay stubs, W-2 forms, tax returns)
Personal identification (e.g., driver’s license, passport)
Proof of residency (e.g., utility bills, bank statements)
Current proof of insurance
Vehicle information (e.g., VIN, make, model, year, mileage)
Details of the current auto loan (e.g., payoff amount, loan number)

Once approved, new loan documents are signed, and the new lender directly pays off the original loan, releasing the cosigner. This method can also offer benefits like a lower interest rate or adjusted loan terms, depending on the borrower’s improved credit profile.

Direct Cosigner Release Programs

Some original lenders offer specific programs that allow for a cosigner to be released from liability without requiring a full refinance. These programs are not universally available and depend entirely on the individual lender’s policies. Such programs are typically outlined within the original loan agreement, or details can be obtained by contacting the lender directly.

The conditions for a cosigner release often include a requirement for the primary borrower to have made a certain number of consecutive on-time payments. This period commonly ranges from 6 to 24 months, demonstrating consistent payment reliability. At the time of the request, the lender will typically conduct a review of the primary borrower’s current credit score and income to ensure they can independently manage the remaining loan obligation. If the borrower meets all specified criteria, the lender will process the release, formally removing the cosigner from the loan agreement.

Paying Off the Loan

The most definitive and straightforward method for removing a cosigner from a car loan is to pay off the entire outstanding balance. Once the car loan is paid in full, the loan agreement is satisfied, and both the primary borrower and the cosigner are automatically released from all financial obligations. This eliminates any shared responsibility, as the debt no longer exists.

This can be accomplished through a single lump sum payment, or by consistently making extra payments over time to accelerate the payoff date. Paying off the loan early can also result in savings on accrued interest over the loan’s original term. By eliminating the debt entirely, the need for a cosigner vanishes, providing a clear and final resolution for both parties.