What does a cosigner of a car loan do?
It can be hard to get a cosigner off a loan. To better understand why, let’s see why a cosigner is used at all.
Essentially, a cosigner is required when the borrower’s own credit and/or income isn’t enough to qualify for the loan. The cosigner, presumably with a stronger credit and income, will help guarantee that the loan will be repaid. This gives the lender or creditor a better peace of mind when lending the loan to the borrower.
Loans including a cosigner include a cosigners notice. The notice asks that the cosigner guarantee the debt. This means that if the original borrower cannot make payments on the debt, then the cosigner becomes responsible for the balance. The cosigner, then, is obligated to make payments until the debt is paid when the borrower can’t.
Co-signing a loan is risky for the cosigner. It can impact the cosigner’s credit if the borrower doesn’t satisfy the debt and the cosigner has to take over. The debt can ultimately affect the cosigner’s credit scores and access to revolving credit, such as credit cards.
Before co-signing, a cosigner should be comfortable taking on the borrower’s loan if it comes to that. The cosigner should also make sure he/she doesn’t need to get a loan of his/her own over the course of the cosigned loans terms. Cosigning on the borrower’s debt will affect the cosigner’s overall credit utilization and ability to secure other credit opportunities in the meantime.
Now that you know the role of a co-signer let’s look at what you can do to remove them from a car loan if needed.
1. Get the Cosigner Off By Refinancing The Car Loan
You can refinance a car loan in your own name to get your cosigner off the loan. In a nutshell, you’ll buy the car from your ex-spouse and go through the car buying process again.
The spouse who is responsible for the car loan payments, the primary signer, should ideally assume credit liability for the loan. It’s also good to go through this process right away, regardless of what your divorce decree states.
Divorce decrees (or court orders) don’t release either person from his/her obligations under the original contract of the loan. For example, let’s say that if you and your ex-spouse have a joint account, like a car loan. If the spouse who is supposed to pay, doesn’t, the negative credit history will end up on both of your credit reports. Therefore, those late payments will damage both of your credit ratings. In fact, the other person may not know about the unpaid account until a collection agency calls.
2. See if You Have a Cosigner Release Option
Some car loans include conditions that remove the cosigner’s obligation after a specified number of on-time payments are made by the primary borrower.
If you’re not sure if this is an option, talk to the lender and check any loan documents you have. The cosigner release option is perhaps one of the easiest methods of taking a co-signers name off a car loan.
3. Pay Off the Loan
Another option to get a cosigner off a car loan is to pay off the loan either directly or by selling the car. If you sell the car, you can use the money to pay off the loan. With luck, the sale value of the car will be enough to cover the remainder of the loan.
Be aware that if you are the cosigner, and the primary borrower defaults on the payments, you can likely seize the asset and sell it.
If you feel that you are capable of getting approved on your own as you are working full-time or receiving pension/permanent disability, you can start building your credit with a car loan today. Visit Canada Auto Experts or call 1-855-550-5565 to get approved regardless of your credit.