If your credit is iffy or you’re buying your first vehicle, a cosigner can be a big help. When the note is paid off and it’s time to get a clear title, though, it can be important to know how to remove a cosigner from a car title. After all, only one person’s name can be on the document, and the continued presence of the cosigner’s name can often complicate things.
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What is a cosigner?
A cosigner is the guarantor of a loan. If the primary borrower can’t make payments for some reason, the cosigner will be on the hook for those missed payments. People usually need a cosigner because their credit score is too low to secure enough financing for a large purchase. For younger buyers who may have no credit score at all, a cosigner is often their only option.
Adding the cosigner’s additional income and/or higher credit score increases the lender’s confidence a loan will be repaid. Cosigners are often family members. Parents often cosign their child’s first car purchase or apartment lease.
Cosigner vs. co-borrower: what’s the difference?
What’s the difference between a cosigner and co-borrower? The co-borrower’s name is on the note and they are considered a shared owner of the asset, even after the note is paid off. In other words, the co-borrower is just as responsible for making payments as the principal signatory of the note. It often happens when people take out a note to go into business together, or a couple takes out a joint loan on a house. A cosigner doesn’t actually own the collateral in question. One point of similarity worth noting: Banks may loan larger amounts when a cosigner or a co-borrower is in the picture because the risk is lower.
How to remove a cosigner from a car title
Cosigners do not have ownership rights to the car. In that case, removing their name is a straightforward process. Once the note is paid in full, the lender should send a clear title for the vehicle. Both parties must sign the title. From that point, present the signed title to the DMV and request a new title without the cosigner. If you’ve refinanced the vehicle, the DMV may need to see the new loan agreement and paperwork. You’ll probably have to pay some fees and may be asked if you’d prefer a paper title or electronic title.
How to remove a cosigner from a car loan
Let’s assume you have an active loan on a vehicle with a cosigner, and for any number of reasons you wish to remove the cosigner (or, the cosigner wishes to be absolved of their repayment responsibility). In that case, you have a few options, some simpler than others.
Pay off the loan
This is the most straightforward path. Once the note is paid off, there’s no longer a cosigner. The cosigner no longer bears any responsibility for the loan or the vehicle. Paying off a loan preterm often requires more cash than many people have on hand and may even trigger an early payment penalty depending on the terms of the loan.
Refinance the car in your name
If you can refinance the vehicle in your name, that can also be how to get a cosigner off a car loan. Just bear in mind that you’ll probably need to have a spotless payment record and a good credit score for the lender to be on board with a refinance. You might be able to get a new loan from your current lender or possibly transfer the loan to another lender.
Sell the car
This is another straightforward way of removing a cosigner. Sell the car and use the proceeds from the sale to pay off the note. That leaves you with no car, but possibly enough money free and clear to make a down payment on another one. This may be a good option for drivers who wish to remove a cosigner and are in the market for a new vehicle.
Ask for a release
If you’re lucky, your lender may have an option to release the cosigner from the loan. Again, you’ll probably need a spotless payment record, and if the vehicle was financed through a used car dealer rather than a bank, they may be a little tougher about this. If the lender wasn’t confident about repayment ability, they might not agree to a release. However, if your income has increased or you’ve improved your credit score since the loan was signed, the release may be an option.
Why would I want to remove a cosigner?
Situations change. Sometimes couples break up or spouses get divorced, and part of the agreement will come down to who hangs onto the vehicle and who’s responsible for payments. If that’s the case, it’s a really good idea to get the cosigner off the loan and head off any potential trouble down the road.
Or maybe it’s one of your first car loans and you’ve been really diligent about keeping up on payments and you just don’t need a cosigner on the hook anymore.
Maybe the cosigner has been hit with some other financial problems or job loss and their credit score is dropping and you can’t afford to have that impact your credit. Or perhaps the cosigner is having a hard time juggling financial obligations, and you’d be doing them a favor by making this move. There are all kinds of possible reasons why things could come to this, but you’ll be the best judge of your own personal situation.
The good news is if your credit is a little battered, a car note (whether it’s dealer financed or bank financed) is one of the best ways to get it cleaned up again. Your on-time payment record will be reported directly to Equifax and Transunion, and it can be a pretty easy way to add 50 or 100 points to your score. Then, next time you need credit for something, you may not need a cosigner to help you out.