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What to know about switching co-signers on a car loan

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Entering a car loan with a co-signer can seem like a good idea initially, but in some cases, plans may not work out as intended. The relationship between the primary borrower and the co-signer may go south, or the finances of the co-signer could change and, as a result, the co-signer wants out of the deal.  

While it is possible to remove a co-signer from a loan, simply replacing one co-signer with another on the original loan is unlikely. The process is more complex and can involve refinancing the loan, completing co-signer release paperwork or simply paying the loan in full to end the co-signer’s involvement. 

You won’t be able to just replace your current auto loan co-signer 

Most lenders won’t simply replace a current co-signer with a new one on an existing car loan because it would require them to essentially go through the approval process for a new auto loan. While it never hurts to ask the lender about this possibility, swapping one co-signer for another on an existing loan is not standard practice.  

The loan modification process typically applies to the terms and conditions of a loan and is not designed or meant for modifying the parties who signed on to the loan. 

Refinancing could remove a co-signer on your car loan and allow for a new one 

Yet another approach to eliminate a co-signer from an auto loan is to simply refinance the loan. In other words, open an entirely new loan that pays off the existing loan’s balance and closes the account. A new loan can be opened with the same lender or a new lender and can be done without the co-signer’s involvement.  

To accomplish this, however, you need to be able to qualify for a new loan on your own, which requires a good credit score and payment history. If you have improved your credit since originally purchasing the car, refinancing may also present an opportunity to obtain a more competitive interest rate or revised loan payment terms. 

If your credit score is not up to par, however, you might consider finding another individual who you trust and are comfortable asking to co-sign a new loan.  

Removing the co-signer from your auto loan may be an option 

While not all lenders offer this option, it is possible in some cases to remove a co-signer by completing a co-signer release. Here’s how to do this: 

  1. Contact the lender: Your first step is to get in touch with the lender who financed the loan and find out whether they even offer a co-signer release option.  
  2. Complete the required paperwork: If the lender offers a release option, you will typically need to complete paperwork that eliminates the co-signer from the loan and makes you the primary borrower responsible for repayment of the loan. Only the primary borrower is allowed to make this change on the loan. 
  3. Lender approval: There’s no guarantee a lender will approve the co-signer release. You will need to prove that you can handle the loan on your own, including having an acceptable credit score and financial resources to maintain repayment. 

Importantly, when making this type of change, your loan term may be changed. Eliminating a co-signer may also affect the interest rate on your loan, particularly if the loan was originally approved based on the co-signer’s good credit. 

The bottom line 

Switching or removing a co-signer on a car loan is not as simple or as straightforward as it sounds. Often, you will need to refinance the loan, pay it off altogether or go through the process of completing a co-signer release — if the lender even offers this option. Think carefully before asking someone to co-sign a loan for you in the first place and be sure you select someone you trust. 

 

Written by
Mia Taylor
Former Contributing Writer
Mia Taylor is a former contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation's leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com.
Edited by
Auto loans editor
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Part of  Financing a Car With a Co-Signer