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Refinancing is one of three options to remove a cosigner from a car loan.
Cars are meant to be the ultimate symbols of freedom — cruising down an empty highway, with the top down, and wind in your hair as you make your way on to your next adventure. But too often, it turns into just the opposite: a trap.
There are a lot of reasons why people go in together on a car loan. Maybe they’re married and it’s supposed to be joint property anyways. Sometimes, a parent or a friend cosigns a loan for someone else who isn’t able to get a car loan on their own.
Either way, even though you might start these relationships and loans with the best of motives, sometimes those intentions head south. And when they do, you might be wondering how you can get out of that cosigned or co-borrowed auto loan.
There are ways to do it, but first, it’ll depend on your circumstances more than anything else.
Factor #1: Cosigner, or Co-Borrower?
The first question you’ll have to consider is whether you’re a cosigner, or a co-borrower. They sound similar, and they are in some ways. For example, in either case, everyone listed on the loan — whether they’re a cosigner or a co-borrower — is ultimately responsible for paying the loan.
Cosigners Are Only Responsible for the Loan
In a cosigner situation, one borrow is the primary borrower. That’s usually the person who’s going to use the car, and who has the primary responsibility in paying it off. For example, if a parent cosigns on a loan for their daughter’s 18th birthday, it’s the daughter who will drive the car and be primarily responsible for payments.
But if she falters and falls behind, then the parents are on the hook to make the payments. The lender will come after mom and dad for the money, in that case. Even worse, the late payments will be listed on both the daughter’s and the parent’s credit report, potentially ruining both of their credit scores.
That’s a scary thing to think about if you’re on a cosigned loan, but at least the damage is limited to just your credit history. That’s not necessarily the case if you’re a co-borrower, however.
Co-Borrowers Are Responsible for the Loan and the Car
If you’re a co-borrower on a loan, you’re also still responsible for the loan. In the eyes of the lender, however, you’re jointly responsible, with the same payment responsibilities of the other borrower. In other words, you’re not just a backup way to get paid. They’ll come to you right away along with the other person if someone doesn’t pay the loan.
One of the biggest differences, however, is that co-borrowers also have a claim to the car. The title will be in both of your names. If you co-borrowed on a loan with your boyfriend, for example, both you and your boyfriend own the car together. And this has huge impacts on your options for how to get out of the car loan.
Factor #2: How Cooperative Is the Other Person?
“Unfortunately, you need some cooperation,” says Leslie Tayne, Esq., and founder of Tayne Law Group. “I’ve had many people come in here saying, ‘What do I do now?’ I say, ‘You can’t do anything.’ Without their cooperation, it’s just not going to happen.”
This is especially true in the case of co-borrowers. Since the other person is also a joint owner of the car itself, you’ll generally need their permission before making any major changes like refinancing it out of their name, retitling it in your name, selling the car, etc. It can create a huge hassle, especially if you and the other person aren’t on speaking terms anymore.
Factor #3: Are There Any Written or Legal Agreements in Place?
We’ve described the general rules for how cosigned and co-borrowed loans operate. But sometimes those rules go out the window, especially if there’s a pre-existing agreement in place, such as a divorce decree, a prenuptial agreement, or even just a handwritten and signed agreement.
For example, according to Tayne, a common example with car loans in divorce cases is when a husband and wife split up. “The question becomes who’s responsible for [paying the loan] and who’s keeping the car, and there’s two different sides of that. There’s the divorce side of it, and the legal side. Sometimes they actually can’t get things refinanced, and yet the other is responsible for it.”
So, for example, while the divorce decree might tell a stay-at-home spouse to refinance their car loan in their own name, they might not actually be able to. According to the decree, the car might legally be theirs and theirs alone, but because they can’t refinance, the other spouse will continue having to pay the car loan for them even though they don’t have any legal right to it anymore.
“It does add a very interesting perspective, because it does come up a lot in divorces,” says Tayne.
You don’t need to be married to need an agreement. Anytime there’s an exchange of money, it’s a good idea to have a written agreement in place. Make sure to specify exactly who’s responsible for what, and what will happen if they don’t follow through. This will help keep your options open for what you can do if you have a falling-out later on.
Now that we’ve thought about what factors might affect the options are available to you, it’s time to look at those options.
Option #1: Get a Cosigner Release
If you cosigned for a loan, one of the quickest routes out is to apply to the lender for a cosigner release. This lets the cosigner off the hook, so that only the primary borrower is the one listed on the loan going forward.
It’s not quite so simple, however. There’s a reason you may have been asked to be a cosigner on another person’s loan in the first place. The lender wasn’t entirely confident that the primary borrower would be able to make on-time payments on their own.
For that reason, usually only people who have demonstrated a good track record of making each loan payment on time for several years running are able to apply for cosigner release. And not all lenders will agree to it, either. Not all lenders offer a cosigner release option, so the only way to know is to reach out the lender and ask.
Unfortunately, this option isn’t available if you’re a co-borrower on the loan.
Option #2: Refinance the Loan
Whether you’re a cosigner or a co-borrower (or, for that matter, if you’re the only one listed on the loan at all), you can always try to refinance in your own name. This option has the added benefit of potentially allowing you to get better interest rates, different loan term lengths, and/or smaller monthly payments as well.
But again, it depends on whether you’re a cosigner or a co-borrower.
“You’re going to have difficulty refinancing it without the consent of the other party” in the case of a co-borrower, says Tayne. Again, that can be tricky if your co-borrower isn’t cooperating with you.
It can also be tricky if you needed the co-borrower or cosigner to get that loan in the first place. You’ll need to be able to qualify for a new loan based on your own good credit and income. Luckily there are many lenders out there willing to refinance your auto loan if your credit isn’t top-notch — there is no minimum credit score requirement to refinance.
Make sure you consider the pros and cons of refinancing before you sign on the dotted line.
Option #3: Pay Off the Loan
Easier said than done, right? The average used car loan was $20,554 in 2019, according to a recent Experian study. If you had enough extra cash lying around to pay off the loan, chances are you would have already done it by now.
There is one way to raise enough money to pay off the loan, though: by selling the car. This might be tough if you’re attached to the car, but consider the consequences if things go bad. If the other person decides to skip town and stop paying, then you could be on the hook for the payments.
Again, if you have a co-borrower, you’ll need to get their permission before you sell the car because legally, it’s their car too.
Remember to Retitle the Car
Getting your ex off the loan is one thing, but if you’re a co-borrower, you’ll also need to consider who’s on the title. Generally, both borrowers are listed on the car title, which might be something you want to avoid if you’ve split with your ex for good. If the other person is also listed on the title, they can take the car away from you and there may be little you can do about it.
Luckily, there might be an easy out for you in this case. Check the owners listed on your car’s title. Specifically, look for “and/or” in between your names. If it’s an “or,” as in, “John Doe or Jane Doe,” it should only take one of you to retitle the car in your own name. But if it’s an “and,” as in “John Doe and Jane Doe,” both of you will need to go to your state’s motor vehicle department and consent to retitling the car in just one person’s name.
“My best advice is to think before you sign and have an agreement. Put it in writing what the responsibilities are of everybody, so that everybody’s clear,” says Tayne. “And if something comes up, at least you have something in writing. If you have something in writing, then you might have some legal standing if you need to go to court.”
Having a written exit plan is sound advice for anyone, and good to remember in the future. But for now, the best way for how to remove a cosigner from a car loan is probably by applying for cosigner release. If that’s not an option or if you’re a co-borrower on the loan, refinancing or selling the car to pay off the loan are your other two options.