How to Remove a Cosigner From an Auto Loan

A cosigner on an auto loan shares responsibility for the debt, providing an assurance to the lender that the loan will be repaid. While a cosigner helps secure favorable loan terms, situations may arise where removing them becomes desirable or necessary. This process involves specific steps and meeting certain conditions, allowing the primary borrower to assume sole responsibility for the vehicle financing.

Prerequisites and Methods for Cosigner Release

Removing a cosigner from an auto loan involves a few common approaches. The most frequent method is refinancing the existing loan in the primary borrower’s name alone. To qualify for refinancing, a borrower generally needs an improved credit profile, with a FICO score of 670 or higher. Lenders also evaluate the borrower’s stable income, debt-to-income ratio, and a consistent history of on-time payments on the current auto loan for at least six months. The vehicle itself also plays a role, with lenders considering its age, mileage, and loan-to-value ratio; negative equity, where the loan balance exceeds the car’s value, can complicate refinancing.

Another option to release a cosigner is to sell the vehicle. This method directly eliminates the original loan obligation by using the sale proceeds to pay off the outstanding balance. The primary condition for this approach is that the sale price must be sufficient to cover the entire loan amount. If the sale generates less than the remaining loan balance, the borrower is responsible for paying the difference to fully satisfy the debt.

Some lenders offer specific cosigner release programs. These programs allow a cosigner to be removed after the primary borrower demonstrates consistent financial reliability. Common conditions for such programs include making a specified number of consecutive, on-time payments, often for 12 to 24 months. The primary borrower undergoes a credit review and must provide proof of sufficient income.

Executing the Cosigner Release Process

Once a method for cosigner release is selected, specific procedural steps follow. If refinancing is the chosen path, the process begins with researching new lenders to find competitive interest rates and terms. The borrower then gathers essential financial documents, which include recent pay stubs, bank statements, tax returns, a valid driver’s license, proof of vehicle insurance, and current vehicle registration information.

The next step involves submitting a loan application to the chosen lender, providing all required documentation. Application processing can take up to two weeks for approval. After approval, completing the necessary documentation for the new loan takes about two weeks. The new lender then facilitates the payoff of the original loan, which can take an additional 30 to 60 days, depending on processing times. Borrowers may encounter state-specific fees for title transfer and vehicle re-registration, or an origination fee.

For borrowers opting to sell the vehicle, the process entails determining the car’s current market value using reliable resources. After finding a buyer, the primary borrower works with the buyer and the current lender to arrange the payoff of the outstanding loan balance directly. Upon full repayment, the lender releases the lien, and the vehicle title can be transferred to the new owner, thereby removing the cosigner from any obligation.

If the current lender offers a specific cosigner release program, the borrower should contact the loan servicer directly to inquire about the precise requirements and necessary forms. This involves submitting an application, providing updated proof of income, and undergoing a credit check. The lender then reviews the request and notifies the borrower of their decision, confirming the cosigner’s release if all conditions are met.