Yes, you can add or remove a cosigner from your vehicle loan by refinancing.
Refinancing a car loan is when you replace one car loan with another loan. It is the best and often only way to change the terms of your loan.
If your situation has changed and you need a little help with monthly payments, or if you could benefit from your spouse’s excellent credit, for example, refinancing with a cosigner might be a good idea.
And on the other hand, if circumstances have changed and you are looking to remove someone from your loan, refinancing your vehicle is a relatively easy way to remove them from the loan – and it has other benefits, if the timing is right for you to get a better deal.
Read on to learn more.
In this guide, we’ll cover everything you need to know about cosigners and refinancing:
What is a cosigner?
Keeping or adding a cosigner
Removing a cosigner
A cosigner is a secondary person who signs onto a loan. They are obligated to pay back the loan should the primary borrower have difficulties making on-time payments. They assume the same financial risk as the borrower. Having a cosigner with good credit can be beneficial in securing a lower APR and getting better auto loan deals.
You can easily keep or add a cosigner when you refinance. Your cosigner will simply have to meet the lender’s requirements. Here are the most common requirements to be added as a cosigner:
A good (or excellent) credit score
A good payment history
A qualifying income
Desire to cosign on your loan
A clean background check
Read on to break each of these factors down.
Great credit is the first requirement of cosigning a loan. Think of your cosigner as a safety net; should something happen to you financially, the lender is assured that there is a backup plan for payments being made on-time. A good credit score is an indication of how strong of a security net you have.
Credit scores are based on payment history, amounts owed (known as credit utilization), credit history length, credit mix, and new credit. A cosigner is only beneficial if they have good credit. A score of 670 and above is considered good, but the higher their credit score is the more helpful it will be to you.
Does your cosigner have a good history of on-time payments? Payment histories show lenders how people handle their debts. If you have a history of consistent payments, you are less of a risk to lenders.
Does your cosigner have a steady income? Their income needs to show that they can pay back the loan on your behalf if you are unable.
Do they want to help you out in this way? Becoming a cosigner comes with a lot of liability. Once they sign on the dotted line, they are responsible for the debt if you should default.
Lenders will often use background checks to determine the liability of a cosigner. They will specifically look for financial issues, including evictions, repossessions, and financial fraud.
There are three ways to remove a cosigner from your loan, but refinancing is certainly the most popular:
Attempt to remove them without changing your current loan
Pay off the loan
Refinance to remove them
You may want to remove a cosigner if, for example, your credit has improved significantly since your original loan, and you no longer need the help of another person. You may want to reduce the risk for a loved one who was helping you out in a time of need, or you may want to change a loan to reflect a changing relationship. Whatever the reason, when you are ready to remove someone as a cosigner, you have the above options.
Let’s take a closer look.
Read your contract carefully and closely and see if there are any provisions that will allow the cosigner to be released from responsibility. This is very unlikely, as cosigning is put in place specifically to make it difficult for one person to back out. However, it is worthwhile to look through your contract if you are thinking about it.
If you pay off the loan entirely, you will remove the cosigner automatically. This may not be a practical solution, however, if you are not in the position to do so.
This is the most popular and easiest way to remove a cosigner. Since refinancing is replacing one loan with another, you are essentially paying off the original loan and starting with a fresh loan with new terms. Before you decide to do this, check on the following:
Your Credit Score. Is your score in good or excellent standing? If it is not in good standing, expect to pay higher interest rates if you drop your cosigner.
Your Cash Flow. Are you able to make the monthly payments every month? Do not remove your cosigner if things will be very tight. Falling behind on payments will be detrimental to your credit and can result in you losing your car.
Your Current Loan. Are there prepayment penalties if you pay off your loan? If the penalties are high, it may negate any savings from refinancing. Is there enough time remaining on your loan to make refinancing worth it? If you are near the end of your loan term, it is likely not worthwhile to refinance.
Your Car’s Condition. Is your car retaining value and eligible to be refinanced? If you owe more on your car than it is worth, you will most likely not be eligible to refinance.
If you’re looking to add or remove a co-borrower, refinancing your vehicle may be your best or only option.
At Auto Approve, we can help you compare quotes from multiple lenders and refinance today.