Cosigning a loan can be a great way to help out a friend or family member in need. You can cosign anything from a car loan, a personal loan, to a mortgage. However, there may be some situations where you (or someone you know) need to get out of a loan that you cosigned. Unfortunately, this can be difficult at times.
But thankfully, it isn’t impossible and can be done with the right approach. This guide will take you through a couple of ways you may be able to get out of a cosigned loan, with some tips and tricks along the way.
Help the Borrower Improve Their Credit
If you are thinking, “I would like to remove myself as a cosigner on a loan,” in many cases, a prerequisite to doing so will be to help the borrower improve their credit. If a person has subpar credit or minimal credit history, your options for getting out of a cosigned loan will be slim.
When helping the primary borrower improve their credit, you can check out their credit report, learn more about why they have a poor credit score, and develop a plan to help them make payments in full and reduce their usage. Solving the root of the credit issues is the best way to help them improve their score and free you from the loan.
Once you get their credit up, you can simply ask the lender to remove you from the loan. If the borrower has proven themselves to be reliable and has made their payments consistently, there is a chance you could be let off the hook. Even if they don’t remove you, many of our other strategies hinge on the main borrower being in a better financial position, so this is never a bad idea to try.
Refinance the Loan
In many cases, the first option you will try is to refinance the loan. If the borrower can refinance the loan in their name alone, it will end your commitment and free you from being attached to the loan any longer.
Refinancing can also change the loan terms and interest rate, so it can be good for more than simply allowing you to get out of the loan. This can be done for car loans, personal loans, and many others.
Also, if you are wondering, “can a cosigner be removed from a mortgage?” the answer is yes. As a result, this is a great option to consider for all parties involved. Of course, to refinance the loan, the borrower you cosigned for might need to have good credit and enough income to make the payments and satisfy the lender’s requirements.
Try to Get a Cosigner Release
Another option is to get a cosigner release. Some loans will include a program that will release your obligation to the loan if enough payments have been made on time in a row. This can vary but is often around a year or so of successful payments. It can be found with various loan programs but is most common with car loans and student loans.
However, keep in mind that there may be other requirements (such as a specific credit score) on top of successful payments. This type of term doesn’t exist with all loans, so make sure to reach out to the lender or examine loan documents before proceeding.
Consider a Balance Transfer Credit Card
A creative way to release yourself from a cosigned loan is to ask the primary borrower to get approved for a balance transfer credit card. If they can transfer the loan balance to a credit card in their name only, you will no longer be responsible for the loan.
While credit cards generally have a much higher interest rate than loans, there is a caveat. Many of these balance transfer credit cards don’t start charging interest right away, allowing the borrower to pay it off without worrying about interest at all.
But if the balance isn’t paid during the interest-free period (generally around a year or a little longer), interest will be charged, and the rate could be a lot higher than it originally was. This is generally a better option for smaller loans than large ones like student loans or car loans to ensure they can be paid off quickly.
Pay it Off
Of course, another option you have to get out of a cosigned loan is to simply pay it off. If you want out of the loan, you could ask the primary borrower if it is possible for them to pay it off quicker. Depending on their budget, they might be able to make more and larger payments or even offer a lump sum in some situations.
You could even offer to pitch in a little to get the loan paid off quickly, especially if being on the loan is hurting your credit. While it might not be the quickest or most affordable option when it comes to taking your name off a car loan or another type of loan, it can certainly be effective.
Reach Out to a Lawyer
Whether you have questions about removing a cosigner from a mortgage or aren’t sure which method will be successful with a particular loan you’re dealing with, there is nothing wrong with reaching out for legal advice. Reaching out to a lawyer can allow you to discuss your options and help you find a way out of the loan.
They may know different arrangements and can help you be aware of your rights as a cosigner. While they may not be able to get you off the hook, it is worth a try if all other options have been unsuccessful.
A word of caution: If you have a negative experience cosigning a loan, consider avoiding these in the future to save yourself the hassle of going through this type of ordeal again.