Ariel Skelley/Getty Images: Illustration by Issiah Davis/Bankrate
Key takeaways
- To release a co-signer, you may have to refinance the loan, complete the co-signer release paperwork or pay off the loan.
- A co-signer has no legal right to the ownership of the vehicle on their own.
- The process of switching a co-signer on your loan is complex and is most easily done through refinancing or a co-signer release.
If you have a co-signer on your car loan, it is possible the loan has outlasted the relationship or the co-signers ability to pay, 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 switching 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. Remember, the primary borrower legally owns the vehicle, so an auto loan co-signer cannot take over without the consent of all parties and a refinance loan.
You cannot add a co-signer to an existing loan
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. You may have heard of loan modification before and might wonder if it’s an option.
Modification is a process that typically applies to the terms and conditions of a loan and is not meant to modify the parties who signed on to the loan. It’s also generally reserved for situations where you might struggle to afford payments and need to work with your lender to stay current on the loan.
Swap co-signers by refinancing
A better approach to adding or eliminating a co-signer on an auto loan is to refinance the loan. In other words, open an entirely new loan that pays off the existing loan’s balance and closes the account.
Refinancing your loan is the easiest way to switch co-signers. Whether you refinance with a new lender or the same one, you’ll have the choice to apply with the same co-signer, a different co-signer or no co-signer at all.
Just keep in mind that you’ll need to qualify for the new loan. That could be hard to do without a co-signer if you haven’t improved your credit since originally purchasing the car.
Remove a co-signer with a co-signer release
While not all lenders offer this option, it is sometimes possible to remove a co-signer by completing a co-signer release.
- Contact the lender: Your first step is to contact the lender that financed the loan and find out whether it offers a co-signer release option.
- 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 the repayment of the loan. Only the primary borrower is allowed to make this change on the loan.
- 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.
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 secure an auto refinance 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.
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