How to Take Someone Off a Car Loan

Removing a co-borrower from a car loan involves a structured process. This situation arises for various reasons, such as a change in personal circumstances or a desire to simplify financial arrangements. Understanding the available options and their requirements is important for navigating this process. This guide outlines the different approaches to removing a co-borrower.

Understanding Your Options for Co-Borrower Removal

Removing a co-borrower from an auto loan typically involves one of three primary methods: refinancing the loan, selling the vehicle, or paying off the loan entirely. Selecting the appropriate method depends on the financial standing of the remaining borrower and the current value of the vehicle.

Refinancing the car loan is a common approach, where a new loan is taken out solely in the name of the individual who will retain the vehicle. This new loan then pays off the existing joint loan. To prepare, lenders generally require personal information including a driver’s license, proof of income (e.g., pay stubs or W-2s), and proof of residence (e.g., utility bill or lease agreement). Vehicle information such as the year, make, model, Vehicle Identification Number (VIN), and current mileage is also needed. Obtain a payoff statement from the current lender, specifying the exact amount needed to close the existing loan, including a “good-through” date, after which the payoff amount may change due to accruing interest.

Another option is to sell the vehicle, using the proceeds to satisfy the outstanding loan balance. This method removes both parties from the loan obligation. Before selling, determine the car’s current market value using appraisal tools like Kelley Blue Book or Edmunds. Contact the current lender for the loan payoff amount, as this may differ from the remaining balance, to ensure the sale price can cover the debt. The vehicle’s title and any lien details will be required to facilitate the transfer of ownership once the loan is cleared.

The third method involves paying off the entire car loan balance with personal funds. This eliminates the loan and the need for a co-borrower. Obtain the exact loan payoff amount from the lender, often with a “good-through” date. Identifying the source of funds for the payoff is important, whether it is from savings or other financial assets.

Steps to Execute Co-Borrower Removal

Executing the removal of a co-borrower follows procedural steps depending on the chosen method. These actions build upon the preparatory information gathered, leading to the successful resolution of the shared financial obligation.

For refinancing, find a new lender and submit a loan application. This requires personal, income, and vehicle details. Lenders will perform a hard credit inquiry, which can temporarily impact credit scores. Upon approval, the new loan documents are signed, and the new lender typically handles the payoff of the original joint loan directly. This process usually takes about two weeks for documentation and 30 to 60 days for the current lender to be paid off and the title updated.

If selling the vehicle, determine its market value and find a buyer, either privately or through a dealership. When selling privately, the transaction requires coordinating with the original lender to ensure the loan is paid off and the title is transferred to the new owner. The sale proceeds are used to cover the loan payoff amount, and any remaining funds are disbursed to the seller. If there is negative equity, the seller must provide the difference to the lender. With a dealership trade-in, the dealer typically handles the payoff directly with the lender.

To pay off the loan directly, contact the original lender to request the precise payoff amount. This amount ensures all accrued interest and principal are covered. The final payment should be made using guaranteed funds, such as a cashier’s check, for immediate clearance and prompt processing by the lender. After the payment clears, the lender releases their lien on the vehicle. This lien release confirms the lender no longer has a financial claim on the car, which is necessary for updating the vehicle’s title.

Key Considerations in the Removal Process

Several practical considerations are important during the co-borrower removal process. These factors can influence the smoothness of the transaction and the financial standing of the parties involved.

Consistent communication with the original lender is important throughout the process. Maintaining open lines of communication helps ensure all necessary forms are submitted, payoff amounts are accurate, and the lien release is processed efficiently. This proactive engagement can prevent delays and misunderstandings.

Cooperation of the co-borrower is also necessary for a successful removal. Both parties typically need to provide signatures on various documents, such as new loan applications, sale agreements, or title transfer forms. Ensuring mutual understanding and agreement on the chosen path simplifies administrative requirements.

Removing a co-borrower can impact credit reports for both individuals. Refinancing involves a hard inquiry, which can cause a temporary, slight decrease in the applying borrower’s credit score. Closing the old loan and opening a new one can affect the average age of accounts, a factor in credit scoring models. However, these effects are generally minor and short-lived, with scores typically recovering within a few months of on-time payments.

Ensuring the vehicle title is correctly transferred and updated is an important step. Once the loan is paid off or refinanced, the original lender releases their lien on the vehicle. In some states, the lender automatically notifies the Department of Motor Vehicles (DMV), and a new title is mailed to the owner. In other states, the owner may need to submit the lien release document to the DMV to obtain a clear title. This process typically takes between two to six weeks, depending on state regulations and whether titles are electronic or paper.