Refinancing a Car Loan to Remove a Cosigner
- In most cases, the only way to remove a cosigner from your auto loan is to refinance the loan in your name only.
- Refinancing means taking out a new car loan to pay off your current loan. You’ll then make payments toward your new loan.
- Lenders will look at factors like your credit and income to decide if you qualify on your own.
- Once you refinance, the original car loan will show as paid on both credit reports, and your cosigner will no longer be legally responsible. The new car loan will appear on your credit report only.
When can you refinance to remove a cosigner, and what does it take to qualify?
Every lender has its own set of rules for what you need to refinance a car loan. While you can check your car refinancing rates at any time, most lenders look for signs that you can handle the loan on your own. Here’s what that looks like:
Signs you’re ready to refinance
- It’s been at least 6 months since you took out your current auto loan. The longer your history of on-time payments, the more likely a lender will approve you for refinancing.
- You’ve made on-time car payments. Lenders want to see a history of on-time payments before considering you for car refinancing, especially if you want to qualify on your own.
- You have better credit than when you got the loan. This isn’t essential, but if your credit has improved since you first took out your loan, you’ll have better odds of qualifying on your own.
What lenders look at when deciding
Requirements differ by lender, but most lenders consider the following factors when determining whether to offer you a car refi:
- Credit score. Having good credit (a 670+ FICO Score) or better could help you get solid rates, though some lenders accept bad credit (a FICO Score below 580).
- Debt-to-income ratio (DTI). A DTI ratio under 36% can help you qualify, but you may still get offers if yours is higher.
- Payment history. Regular, on-time payments show lenders that you can handle the cost of your car loan.
- Employment and income. Regular employment and steady income improve your odds of qualifying because they lower the risk that you’ll stop making payments.
- Car age and mileage. Lenders have different requirements, but you’ll typically have an easier time qualifying if your car is less than 10 years old and has fewer than 100,000 miles.
Not likely. You usually need to refinance to remove a cosigner.
Cosigner releases are rare, but it’s worth checking your loan agreement or asking your lender if you can sign a release to remove your cosigner after a certain number of payments.
How to remove a cosigner by refinancing
- Check your rates with multiple lenders. Get offers from up to five car lenders on an online marketplace like LendingTree or apply directly on lender websites. Checking your rates with different lenders will boost your odds of approval and could save you money when you choose the cheapest offer.
- Prepare for a hard credit pull. Lenders typically pull your credit when you apply for a car loan. The impact to your credit score is usually small (around five points, according to FICO) and temporary, especially when you continue making on-time payments. Do all of your shopping in a 14-day period to make all credit pulls count as one.
- Compare your offers. Focus on the total loan cost, not just the monthly payment. A shorter term usually saves the most in interest, as long as the payment fits your budget.
- Sign your new loan agreement. This will be similar to the process you went through when you first took out your car loan. The previous cosigner doesn’t need to be involved.
- Start making payments. Typically, your new lender will pay off your current loan directly and you’ll start paying the new loan. Your cosigner will be off the hook financially.
If you don’t qualify for refinancing right now, improving your credit score and continuing to make on-time payments are good ways to boost your chances. You can also sell or trade in your car if you need to remove your cosigner right away.
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