Asking someone to cosign a loan with you is pretty common. It can be a great way to help you get better loan terms than you might be able to on your own, especially if you are still building your credit history. But for long-term loans, there may come a time when you want to refinance the loan and are no longer in need of that second person to help you qualify.
But if you are refinancing, just how do you remove a cosigner? It’s much easier than you think. Read on for the inside scoop from the team here at RateWorks.
What is an Auto Loan Cosigner and Why Remove Them?
Are you looking at a loan agreement? Do you see that line for a second applicant? You’ll likely see that on just about any credit or loan application. This is where a second person who agrees to share responsibility for your loan, signs on the dotted line.
However, a cosigner can serve several different purposes. You may be applying for a loan with your partner or spouse, and in those cases, having both names associated with the loan may be the right thing to do. Or, perhaps you don’t yet have a satisfactory credit score, and asking your parent or another trusted relative or friend to sign for the loan with you can help you get better rates.
A cosigner can be involved in helping share financial responsibility for the loan. They can also sign to help get you those better terms, only becoming financially accountable for the loan should you not be able to fulfill the loan terms.
But like we said, there may come a point where you no longer need that second obligated party. And this is exceptionally common when it comes to refinancing an auto loan.
Common Reasons for Removing a Cosigner
Let’s explore the most common reasons you might want to remove a cosigner from your refinanced loan.
- Your credit score or financial situation has improved, allowing them to qualify for the loan on their own.
- Releasing the cosigner from any legal and financial obligations tied to the loan.
- Changes in personal circumstances, such as relationship status, may make it preferable to have only one name on the loan.
Can You Remove a Cosigner By Refinancing a Car Loan?
We won’t beat around the bush on this one—yes, when refinancing, you can remove a consignor from the loan. In fact, that’s part of the process because your new loan will replace the old one, and the new one will be in your name only.
Basically, when you refinance a car loan, the existing loan is paid off, and a new loan is created under updated terms. This means the cosigner on the original loan is no longer needed, as the new loan will only include the names of those who are applying for it. It’s an easy way to simplify the loan process.
To refinance without a cosigner, you will typically need to meet the following criteria:
- A sufficient credit score and steady income are necessary to qualify for the new loan on your own.
- Lenders will typically look at your debt-to-income (DTI) ratio and loan-to-value (LTV) ratio to assess whether you meet their requirements.
- You may need to provide a higher down payment or agree to a shorter loan term, depending on your financial situation and the lender's terms.
When Should You Refinance an Auto Loan to Remove Cosigners?
So, this all begs the question—when is the right time to refinance an auto loan and remove cosigners? Provided that you can achieve better loan terms and current auto refinance interest rates are competitive, there are many instances that make the perfect time to refinance and take on full responsibility for your new loan.
- After your credit score has improved, allowing you to qualify for better loan terms without the need for a cosigner.
- When your income is stable and sufficient to meet the lender's requirements for the loan on your own.
- Once you've made consistent, on-time payments, demonstrating your ability to handle the loan responsibly and building your creditworthiness.
However, there are also some instances where refinancing might not be the best option for you and your best bet is to wait it out. Here are some examples.
- If the loan balance is significantly higher than the vehicle’s value, it may be difficult to secure favorable refinancing terms.
- If current interest rates are higher than the rate on your existing loan, refinancing could end up costing you more in the long run.
- Removing the cosigner might increase your interest rate if your individual credit or financial profile doesn't meet the lender’s preferred criteria.
Are You Considering Auto Loan Refinancing to Remove a Cosigner?
If you are thinking of an auto refinance, we encourage you to get a free quote from our team here at RateWorks. We offer competitive rates, easy to understand loan terms, and excellent customer service. See why an auto refinance with RateWorks is the best move for you, and remove your cosigner today.