How to Get Off as a Cosigner on a Loan
Navigate the steps to responsibly release your financial obligation as a cosigner on a loan and safeguard your credit.
A cosigner on a loan shares responsibility for its repayment. If the primary borrower fails to pay, the cosigner is obligated for the full loan amount. This article provides information for individuals seeking to remove their name from a loan obligation.
Understanding the Requirements for Release
Before attempting to remove your name as a cosigner, review the original loan agreement. It may contain specific clauses or conditions regarding cosigner release, such as a period after which a release can be requested, or performance criteria the primary borrower must meet.
Lenders require a consistent record of on-time payments for a cosigner release. They look for a period of consecutive, timely payments, which can range from 12 to 24 months. Any history of late or missed payments will likely hinder a release.
Lenders evaluate the primary borrower’s current creditworthiness. They examine their credit score, which needs to be strong since the loan’s origination. The primary borrower’s income stability and debt-to-income ratio will be assessed.
Gather loan documentation, including the loan number, original loan terms, and contact information for the loan servicing department or cosigner release unit. Research the lender’s criteria for cosigner release. Understand their thresholds, such as a minimum number of consecutive on-time payments, a specific credit score requirement for the primary borrower, or a debt-to-income ratio that meets their independent lending standards.
Directly Requesting a Cosigner Release
Initiate contact with the original lender to request a cosigner release. Find the relevant department by calling customer service or checking the lender’s website. Clearly state your intention to seek a cosigner release from the loan.
During the request, provide loan and borrower information to the lender. This includes the loan account number, the primary borrower’s name and contact details, and your information as the cosigner. Lenders may also ask for original loan agreement details or the loan initiation date.
The lender will review for cosigner release eligibility. This evaluation focuses on the loan’s payment history, seeking consistent on-time payments. They will also assess the primary borrower’s current financial standing, including income, employment stability, and credit score.
Lenders may require forms or documentation from either the primary borrower or the cosigner. This could include recent pay stubs, tax returns, bank statements, or a new credit application for the primary borrower. The primary borrower might need to formally apply for the release.
Once the lender completes their review, they will communicate their decision. If approved, the lender will provide documentation confirming the cosigner’s obligation is removed. This documentation serves as proof of the release. If denied, the lender should provide a reason.
Facilitating Release Through Loan Restructuring
Refinancing the Loan
Refinancing the original loan achieves a cosigner release. The primary borrower obtains a new loan in their name alone, which pays off the outstanding balance of the original loan. This requires the primary borrower to qualify independently based on their current creditworthiness and financial standing.
To pursue this option, the primary borrower applies for a new loan with a financial institution. This application process involves gathering and submitting documents, such as income verification (pay stubs, tax returns), bank statements, and credit reports. The primary borrower should apply to several lenders to compare interest rates and terms.
Upon approval of the new loan, funds are disbursed to pay off the loan balance. This transaction closes the original loan account and removes the cosigner’s name. The primary borrower becomes solely responsible for the new refinanced loan.
Paying Off the Loan
Paying off the loan releases a cosigner. This can be achieved by the primary borrower, or by the cosigner. This option resolves the cosigner’s liability.
To proceed with a payoff, obtain the payoff amount from the lender. This amount includes the principal balance and any accrued interest. Lenders can provide this information through their online portal, by phone, or via a written statement.
Once the payoff amount is known, the payment can be made. Ensure the payment covers the amount to close the account. After processing, the lender will confirm the loan has been paid and the account is closed.
Selling the Asset
For loans tied to an asset, such as a car loan or a mortgage, selling the asset can facilitate a cosigner release. The proceeds are used to satisfy the loan balance. This option is relevant when the primary borrower is unable to manage the debt or refinance independently.
The process involves listing the asset for sale and finding a buyer. Once a sale agreement is reached, the proceeds from the sale are directed to the lender to pay off the loan. The sale price must be sufficient to cover the loan balance; if it is not, the primary borrower would need to cover the remaining deficit.
After the loan is paid off through the sale proceeds, the lender will release their lien on the asset and confirm the loan account is closed. Obtain documentation from the lender confirming the loan’s payoff and cosigner’s liability release.