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Securing a co-signer or co-borrower on an auto loan can be a fantastic way to receive more competitive rates and terms or seamlessly own a vehicle with a partner. But life can become complicated and if you need to exit a car loan, there are a few options available.
Options if you co-signed a car loan
In the case of a co-signed loan, one borrower makes payments while the other takes on responsibility for continuing payments if the first defaults. If this is a situation you have found yourself in, consider the following options to remove your name from the loan.
But remember that you’ll need the primary borrower’s cooperation to pursue these options.
Get a co-signer release
While not all lenders offer this, a co-signer release is simply paperwork that removes the co-signer from the loan. Keep in mind that leaving can negatively impact the rates the now-primary borrower will receive, especially if your credit score was better than theirs.
Note that not all lenders will agree to a co-signer release if the primary borrower’s credit is still lacking.
The process of refinancing essentially presents the primary borrower with an entirely new loan with a new lender. The new loan pays off the one to which you were attached as co-signer, freeing you from the obligation.
If you co-signed a vehicle because the primary borrower couldn’t qualify on their own, finding a lender who’s willing to refinance the loan could be a challenge. But consider shopping for a bad credit lender. Some refinance lenders now offer acceptance criteria outside of traditional credit scores, which can be a good option.
Pay off the loan
Paying off the loan is the most straightforward manner to exit the loan agreement as it ends the loan. If this is a manageable option, you must contact the lender and pay off the current balance along with the payoff amount.
Once the loan is paid off in full, the responsibilities of both the primary borrower and the co-signer will end. Skip this choice if it furthers any financial strain you are experiencing.
Options if you co-borrowed a car loan
A co-borrower, on the other hand, holds equal responsibility with the other borrower for the loan and the vehicle. More than this, the title will be in the name of both co-borrowers. Here are some ways to remove yourself from the loan as a co-borrower.
Pay off the loan
As explained above, if you have the money, you can contact the lender and pay the agreed-upon amount. It’s easier to do this with a co-borrower situation than as a co-signer since, as a co-borrower, you have ownership rights to the car.
But similarly, if this puts you in a precarious financial spot, then it is not worth the additional risk. And remember that once the loan is paid off, you’ll still share ownership with your co-borrower.
Sell the vehicle
By selling the vehicle, you and the other borrower will be completely removed from the loan agreement. Know that you will need a signature and an agreement from the other party before the final sale.
Selling the vehicle may also give you the necessary cash to pay off any remaining loan balance.
Refinance the vehicle
The choice to refinance will present your co-borrower with an entirely new loan, minus your involvement. Following approval, the remaining borrower will receive new rates and terms. They will get to keep or sell the vehicle once it’s paid off.
What if the other person on the loan isn’t cooperating?
The above solutions rely on you and your co-signer or co-borrower communicating and coming to an agreement about what to do. But that may be impossible if you need to exit a loan because of a relationship breakdown or another challenging situation.
Unfortunately, there isn’t much your lender can do in these situations. The lender has a financial stake in this conversation and has the incentive to do what is needed until they get the balance paid back in full. And a legal agreement like co-signing or co-borrowing doesn’t end when a relationship does.
If you are going through a divorce, make sure to consult your divorce lawyer about handling the auto loan. Your separation agreement can lay out a course of action, along with consequences if one party or the other doesn’t stick to the agreement you reach.
And examine the vehicle title. If the loan is joint, it will say “or” or “and/or” and these small conjunctions give you the power to sign as an owner of the vehicle.
The bottom line
If your circumstances have shifted and you need to get your name off a car loan, you can get a release, refinance, sell the vehicle or pay off the car loan.
To avoid any future headaches, take the time to ensure you are fully removed from the co-signed or co-borrowed auto loan by checking with the borrower. Otherwise, if the other party stops paying, you could be left with a damaged credit score even if you don’t have the vehicle in your possession.