How to Remove a Cosigner From a Car Loan

When you cosign a car loan, you agree to share joint financial responsibility for the debt with the primary borrower. If the primary borrower is unable to make their car payments, the lender will expect you to repay the loan. And as a cosigner, your credit score could suffer damage from any late payments or loan default even if you never drive the vehicle yourself.^[1]

A lender might ask you to add a cosigner to your car loan if you have a bad credit score or lack sufficient income to qualify for the loan on your own. But there could come a time in the future when you want to remove the cosigner from your loan.

The bad news is that removing a cosigner from an auto loan isn’t always as simple as adding one in the first place. But if you’re determined, there are three possible ways to accomplish your goal. You can see if you’re eligible for a co-signer release from the lender, pay off the loan, or attempt to refinance the auto loan into your name alone.

Is it possible to remove a cosigner from an auto loan?

Depending on your situation, it may be possible to remove a cosigner from an auto loan. However, just because removing a cosigner is sometimes possible doesn’t mean doing so will be a simple task. Below is a closer look at the three potential ways to remove a cosigner from an auto loan.

1. Refinance

The easiest way to remove a cosigner from your auto loan is typically to refinance the loan into just your name. Refinancing a car is the process of taking out a new auto loan to pay off the original debt. Often the new loan comes from a new lender, though it’s sometimes possible to refinance with your original lender as well.

Of course, to refinance your car loan without a cosigner you’ll need to find a lender that’s willing to approve you on your own. Bad credit, low income, or a high debt-to-income ratio (DTI ratio) could make qualifying for an affordable auto loan on your own a challenge.

If you know that refinancing an auto loan into your name alone is a future goal, you may want to work on improving or building your credit. Paying down debt, especially high-interest credit card debt might also work in your favor. When you pay down credit card debt it can reduce your DTI ratio and potentially improve your credit score by lowering your credit utilization ratio.

2. Pay off the loan

Another way to release a cosigner from their financial obligation is to pay off the loan. This solution also protects the credit reports and scores of the cosigner since there would be no additional outstanding loan payments to worry about making on time.

Of course, most people don’t have the extra cash lying around to simply pay off their auto loans in full. So, while paying off an auto loan might be the easiest way to release a cosigner from their obligation, it’s probably not the most realistic solution.

3. Cosigner release

In rare cases, lenders may add clauses in their auto loan agreements that include cosigner releases. If your loan agreement features a cosigner release clause, you may be able to request the removal of a cosigner from your car loan after making a certain number of payments on time and satisfying other criteria.

Steps to take to remove a cosigner from your auto loan

The steps you take to remove a cosigner from your auto loan will vary depending on the strategy you use. Below are some helpful tips to guide you through your options.

Steps to refinance an auto loan

• Check your credit. Before you refinance an auto loan, it’s wise to begin by checking your credit reports from Equifax, TransUnion, and Experian. And you may want to review your associated credit scores.
  A lender will check your credit report and score from one or more of the major credit bureaus when you apply to refinance your auto loan. Therefore, knowing where your credit stands prior to your application can be helpful.
• Comparison shop. Once you know the condition of your credit, shop around for lenders that offer auto loans that seem like a good fit for you. Look for qualification terms you believe you’ll be able to meet on your own, without a cosigner.
  Next, compare interest rates, fees, terms, and other loan features until you’re confident you’ve found a refinance offer that makes sense for you. Some lenders may even let you see if you prequalify for an auto loan refinance, allowing you to check your loan eligibility and interest rate with a soft inquiry that won’t damage your credit score.
• Apply for the new loan. Once you find your preferred loan offer, you can move forward with the official loan application without a cosigner. Be prepared to provide your personal details (e.g., name, address, Social Security number, date of birth, income, etc.) along with documentation to prove your income and employment at the lender’s request.
• Accept the loan and begin payments. If you qualify to refinance your auto loan into your own name, it’s important to review the final terms of the loan agreement. As long as you're satisfied with the APR, fees, and other loan details, you can sign the new promissory note and accept the loan offer. After completing this step, your new lender will pay off your original loan and your cosigner won’t be tied to the new loan. But be sure to pay attention to the timing of the original loan payoff. You might owe one final payment to your original lender before you begin making payments on the new loan.

Steps to paying off an auto loan

• Find out the payoff amount. If you have the cash available, you can release a cosigner from a car loan by paying off the balance. However, the payoff amount on your loan may differ from the loan balance reflected on your statement or online account dashboard. And if you’re paying off your loan early, you might have a prepayment penalty to consider. As a result, it’s important to contact your lender to request an official payoff amount. Once you make this request, the lender must tell you the total amount required to pay off your auto loan by the date you specify.^[2]
• Follow up after payment. After you pay off your loan, it’s important to follow up with your lender. Get a statement or letter that confirms the balance on the loan is satisfied in full and the account is closed in good standing. After around 30 days or so, review your three credit reports and have your cosigner do the same with theirs. Make sure all of your credit reports contain accurate information and show that the account has a zero balance and is closed in good standing. If any credit reporting errors take place, you can use the statement or letter you received from the lender to dispute the mistake with the appropriate credit reporting agency.

Steps to requesting a cosigner release

• Contact your lender. If you’re not sure whether your lender will release a cosigner from your auto loan, a good place to start is contacting the lender to request more information. Some lenders may let you apply for a cosigner release after a certain number of on-time payments, an updated credit review, and proof that you have sufficient income to afford to loan payments on your own. ^[3] You could also consider sending the lender a certified letter asking for a review of your account to see if you’re eligible for a cosigner release. The CFPB provides sample letters that borrowers can mail to their loan servicers to find out if they’re eligible for a release. These letters are designed for private student loan borrowers. However, you may be able to adapt and use the letter for an auto lender as well.^[4]
• Follow up after release. In the event a lender approves your request for a cosigner release, it’s important to get those details in writing. Your cosigner will want to make sure their credit reports no longer show an outstanding loan obligation in their name after the release. If the credit bureaus haven’t updated the account around 30 days after the cosigner release occurs, the cosigner may want to dispute the credit error.

Why someone might want to remove a cosigner from a car loan

It’s easy to understand why someone might want to add a cosigner to their auto loan. Getting a car loan with bad credit or income limitations can be difficult. But if you add a cosigner with good credit in these situations, you may have more (and often more attractive) loan options.

According to Experian, borrowers with the highest credit scores (aka super prime borrowers with credit scores of 720 or higher) were paying interest rates of a little over 5% on new car loans during the first quarter of 2023. By comparison, deep subprime borrowers, those with credit scores of 579 and below, were paying over 14% on average for the same new car loans.^[5]

Yet after the fact, there could be several reasons why you might want to remove a cosigner and switch a car loan over to your name only instead.

To protect the co-signer’s credit and your relationship

When you ask a family member or friend to cosign for your car loan, you probably have every intention of making your payments on time. But if a job loss, sickness, injury, or even poor budgeting habits causes you to fall behind on your bill, it’s not just your personal credit scores that could suffer from any late payments that take place. Your cosigner’s credit scores could suffer damage as well.

The Federal Trade Commission does recommend asking the lender to send you a copy of the monthly loan statements if you decide to co-sign. You can also ask the lender to notify you if the primary borrower misses a payment or if the terms of financing change. This might give you the opportunity to catch up on missed payments yourself if the primary borrower fails to keep up with the financial obligation, and hopefully protect your credit (to at least some degree) in the process. However, there’s no guarantee you can force a lender to honor these requests.^[6]

Because cosigning is risky, it’s best to avoid this type of arrangement whenever possible. And if you already have a cosigner on your car loan, working to improve your own credit so you can refinance it into your own name may be best for the long term relationship with your family member or friend.

The cosigner wants a new loan

Another reason a cosigner might want you to remove their name from an auto loan is because they want to borrow more money in the future. As a cosigner, your auto loan will appear on their credit report.

That debt will have an impact on their debt-to-income ratio if they attempt to apply for a new loan. As a result, they’re likely to qualify for lower loan amounts for themself in the future until your car loan is paid off or you find a way to refinance or release them as a cosigner.

Change in relationship

It’s common for couples to cosign for one other on car loans, mortgages, and other types of financing. However, if there’s a change in the relationship status and the couple breaks up, a joint auto loan usually no longer makes sense.

Protecting your credit and finances during a divorce can be complicated. But one of the first steps after a break up is typically to separate shared credit obligations, including cosigned loans. Often in these situations, the person who’s keeping the car will try to refinance the loan into their own name if the vehicle is financed and paying off the loan isn’t an option.

Can a cosigner remove themself from a car loan?

As the cosigner, removing yourself from a car loan can be difficult, especially if you’re attempting to do so without the other party’s cooperation. To attempt to remove yourself as a cosigner, you would need to follow the same basic steps detailed above.

You could try to:

• Convince the primary borrower to refinance the loan without you.
• Ask the primary borrower to pay off the loan, or pay it off yourself.
• Ask the primary borrower to contact the lender and see a cosigner release is available.

If the options above fail or the primary borrower is unwilling to communicate with you, you could also consider hiring an attorney and attempt to find a resolution in court. Keep in mind this could be costly with no resolution if the borrower has no means to make the monthly payments, they may not be able to pay you. You will be paying on the auto loan and attorney fees.

Sources

1. Consumerfinance.gov. “Why would I need a co-signer for an auto loan?” https://www.consumerfinance.gov/ask-cfpb/why-would-i-need-a-co-signer-for-an-auto-loan-en-811/
2. Consumerfinance.gov. “What is a payoff amount? Is my payoff amount the same as my current balance?” https://www.consumerfinance.gov/ask-cfpb/what-is-a-payoff-amount-is-my-payoff-amount-the-same-as-my-current-balance-en-205/
3. Navyfederal.org. “How to Add or Release a Co-signer From a Loan.” https://www.navyfederal.org/loans-cards/student-loans/resources/add-release-cosigner.html
4. Consumerfinance.gov. “What is a co-signer for a student loan?” https://www.consumerfinance.gov/ask-cfpb/what-is-a-cosigner-student-loan-en-565/
5. Experian.com. “What Auto Loan Rate Can You Qualify for Based on Your Credit Score?” https://www.experian.com/blogs/ask-experian/auto-loan-rates-by-credit-score/
6. Consumer.ftc.gov. “Cosigning a Loan FAQs.” https://consumer.ftc.gov/articles/cosigning-loan-faqs#StepsToTake

About the author

Michelle Lambright Black is a nationally recognized credit expert with two decades of experience. She is the founder of CreditWriter.com, an online credit education resource and community that helps busy moms learn how to build good credit and a strong financial plan that they can leverage to their advantage. Michelle's work has been published thousands of times by FICO, Experian, Forbes, Bankrate, MarketWatch, Parents, U.S. News & World Report, and many other outlets. You can connect with Michelle on Twitter (@MichelleLBlack) and Instagram (@CreditWriter).

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