How to Take a Cosigner Off a Car Loan

A car loan cosigner assumes responsibility for the debt if the primary borrower cannot make payments. This arrangement helps individuals with limited credit or income qualify for a loan or secure favorable terms. While a cosigner provides security for the lender, many primary borrowers eventually seek to remove this obligation. Removing a cosigner from a car loan is possible under specific circumstances.

Assessing Your Eligibility for Removal

Before attempting to remove a cosigner, the primary borrower should evaluate their financial standing and the loan’s current status. Lenders assess several factors to determine if a primary borrower can independently manage the loan. A consistent record of on-time payments for the car loan is a fundamental requirement. Lenders typically look for a history of at least 12 to 24 consecutive on-time payments, demonstrating reliable financial behavior.

An improved credit score for the primary borrower is another significant factor. A higher credit score indicates reduced risk for lenders and reflects responsible credit management. While minimum credit score requirements vary, a score generally above 600, and ideally above 660 or 700, can significantly improve eligibility for cosigner removal. The borrower must also demonstrate sufficient income to independently cover the loan payments and maintain a healthy debt-to-income (DTI) ratio. Lenders prefer a DTI ratio, which compares monthly debt payments to gross monthly income, to be below 50%, with many preferring it below 36%.

The age of the loan and the vehicle’s equity also play a role in eligibility. Having paid down a notable portion of the loan principal, perhaps 25% to 50%, can strengthen a borrower’s position. Positive equity, where the vehicle’s market value exceeds the remaining loan balance, further reduces risk for the lender. Evaluating these aspects helps the primary borrower understand their readiness for cosigner removal and which method might be most suitable.

Removing a Cosigner Through Refinancing

Refinancing the car loan is a common method to remove a cosigner, as it involves replacing the existing loan with a new one solely in the primary borrower’s name. This process requires gathering specific information and documents to prepare for the application.

The primary borrower will need to gather specific information and documents:
Personal identification (driver’s license, Social Security number).
Proof of income (recent pay stubs, W-2 forms, or tax returns).
Current loan details (account number, payoff amount, existing lender information).
Vehicle information (VIN, make, model, year, mileage).

These documents are crucial for new lenders to assess the borrower’s creditworthiness and the vehicle’s value. New loan applications can be found on the websites of banks, credit unions, and online lenders.

Once the necessary information is collected, the primary borrower can begin the procedural steps. This involves shopping for new lenders and comparing interest rates, loan terms, and any associated fees. Submitting the refinance application will usually result in a hard credit inquiry. If the application is approved, the borrower will receive new loan terms to review, including the annual percentage rate and monthly payment. The new loan proceeds are then used to pay off the original loan, effectively removing the cosigner from the financial obligation.

Removing a Cosigner Through Lender Release Programs

Some original lenders offer specific programs designed to release a cosigner from a car loan without requiring a full refinance. The first step involves contacting the current lender directly to inquire about the availability and specific criteria of such a program. Not all lenders provide this option, so direct communication is important to determine if it is a viable path.

These cosigner release programs often have unique requirements beyond general eligibility, such as a mandate for a certain number of consecutive, on-time payments made by the primary borrower. The primary borrower may also need to meet updated credit score and income thresholds that demonstrate their ability to manage the loan independently. The lender will specify required forms and supporting documents, such as updated income verification or a recent credit report.

After gathering the necessary information and completing the required forms, the primary borrower can submit the release request. The lender will then review the application and notify both the primary borrower and the cosigner of their decision. If approved, the cosigner will be formally released from the loan agreement.