Ariel Skelley/Getty Images: Illustration by Issiah Davis/Bankrate
Key takeaways
- To release a cosigner, you may have to refinance the loan, complete the cosigner release paperwork or pay off the loan.
- A cosigner has no legal right to the ownership of the vehicle on their own.
- The process of switching a cosigner on your loan is complex and is most easily done through refinancing or a cosigner release.
If you have a cosigner on your car loan, it is possible the loan has outlasted the relationship or the cosigners ability to pay, and, as a result, the cosigner wants out of the deal. While it is possible to remove a cosigner from a loan, simply switching one cosigner with another on the original loan is unlikely.
The process is more complex and can involve refinancing the loan, completing cosigner release paperwork or simply paying the loan in full to end the cosigner’s involvement.
Remember, the primary borrower legally owns the vehicle, so an auto loan cosigner cannot take over without the consent of all parties and a refinance loan.
You cannot add a cosigner to an existing loan
Most lenders won’t replace a current cosigner 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. It never hurts to ask the lender about this possibility, but swapping one cosigner for another on a 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 cosigners by refinancing
A better approach to adding or eliminating a cosigner 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 cosigners. Whether you refinance with a new lender or the same one, you’ll have the choice to apply with the same cosigner, a different cosigner or no cosigner at all.
Just keep in mind that you’ll need to be able to qualify for a new loan. If you haven’t improved your credit since originally purchasing the car that could be hard to do without a cosigner.
Remove a cosigner with a cosigner release
While not all lenders offer this option, it is sometimes possible to remove a cosigner by completing a cosigner release. Here’s how to do this:
- 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 cosigner 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 cosigner 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 cosigner may also affect the interest rate on your loan, particularly if the loan was originally approved based on the cosigner’s good credit.
Bottom line
Switching or removing a cosigner 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 cosigner release — if the lender even offers this option. Think carefully before asking someone to cosign a loan for you in the first place, and be sure you select someone you trust.
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