How to Be Removed as a Cosigner on a Car Loan
Secure your financial future by learning the structured approach to exiting a cosigned car loan obligation.
Being a cosigner on a car loan means sharing legal responsibility for the debt. This arrangement helps the primary borrower secure financing, especially if their credit history is limited or their credit score is not strong enough to qualify alone. A cosigner may seek to be removed from this financial obligation. This guide outlines pathways to achieve that goal.
Understanding Cosigner Release Options
Several avenues exist for cosigner release from a car loan. Refinancing the original loan is one common method. This replaces the existing loan with a new one, ideally solely in the primary borrower’s name, removing the cosigner’s obligation.
Paying off the entire loan balance is another approach. When fully satisfied, both the primary borrower and the cosigner are released. Selling the vehicle can also facilitate release; proceeds pay off the loan, ending commitment for both parties. Some lenders offer cosigner release programs after certain conditions are met, such as on-time payments by the primary borrower.
Preparing for Loan Release Efforts
Before initiating any cosigner release strategy, gather financial information and documents. The primary borrower’s financial standing is important, including their updated credit score (e.g., 670+ FICO for favorable refinancing). Lenders also assess income stability, employment history, and debt-to-income (DTI) ratio (gross monthly income towards debt payments), generally aiming for below 36%.
Current loan details are also required: outstanding balance, interest rate, and remaining term. Review the original loan agreement for cosigner release clauses or prepayment penalties. Obtaining the vehicle’s market value (e.g., Kelley Blue Book, NADAguides) is helpful, especially for selling or understanding loan-to-value (LTV) for refinancing. Communicate openly with the primary borrower to ensure agreement and cooperation.
Executing Cosigner Release Strategies
Once information is gathered, the chosen strategy can be executed. If refinancing, the primary borrower applies for a new loan in their name alone. This involves a loan application, income verification, and a credit check. Upon approval, new loan funds pay off the original loan, and new documents are signed, formally releasing the cosigner.
To pay off the loan, the primary borrower contacts the lender for an official payoff quote, providing the exact amount needed. This quote accounts for principal and accrued interest up to a specific date. After receiving the quote, full payment is submitted, and the lender processes a lien release, confirming the loan is satisfied. If selling the vehicle, prepare it for sale, list it, and negotiate with buyers. Sale proceeds pay off the loan, and the lender issues a lien release, allowing title transfer to the new owner.
Verifying Cosigner Status
After any process, the cosigner should confirm official removal from the loan. Check your personal credit report. Obtain a free annual credit report from Equifax, Experian, and TransUnion via AnnualCreditReport.com. The credit report should show the loan as closed with a zero balance or, if refinanced, entirely absent.
Additionally, contact the original lender for written confirmation of release. This documentation serves as proof of removal. If sold or refinanced, reviewing new loan documents or the updated vehicle title also confirms the process.