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Removing a cosigner from a car loan is not easy especially if you have bad credit. However, the one sure way you can remove or change a co-signer is by refinancing. However, you are stuck with your co-signer unless your credit has improved since taking out the loan to a point where you can equally refinance. But first things first.
Who is a cosigner?
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A cosigner to your car loan is the third party to the loan, their job is to provide assurance that the loan is repaid in full. It is typical that your cosigner is someone who is in a good credit situation, provides support and reduces the ‘risk’ of the loan in the lender’s eyes. Having a cosigner is one of the best ways to improve your chances of getting approved for a car loan if you have a bad credit score.
However, not everyone is able to cosign on an automobile loan, so it is crucial that you ensure that any potential cosigner meets the basic car loan requirements. Here are the general ones:
1. The cosigner’s creditworthiness and willingness to cosign your loan
As obvious as this may sound, remember that your cosigner has to be willing to actually sign a contract pledging that they will pay the lender all amounts due on the loan in the event that you fail to do so yourself. As any rational business person should, lenders or banks do not accept any informal verbal agreement or promise from the cosigner on your behalf. Both the pledge and guarantee need to be written and signed on a contract.
For your cosigner to be accepted by the lender or bank, they are usually required to have an excellent or good [personal credit rating. Generally, a lender would require your cosigner to have a credit rating score of 700 or above. People who have this range of credit score or higher are usually very financially responsible and pay their bills and obligation on time. If you have bad credit then your cosigner is required to have excellent credit.
2. The cosigner’s stability in residence and employment
Even though this is not quite as strict as the other requirements, most lenders and banks like to see the stability of your cosigner in terms of residence and employment. When looking at your cosigner, a bank or lender would like to see an individual that is well established and has roots in his or her community. A lender would favorably view a cosigner that has worked at their present job for a relatively long period of time and has lived at one address for five or more years.
While there are certainly exceptions to this requirement, potential lenders, however, place significant weight and value in the stability of your cosigner when making a decision in regards to your car loan application.
3. Proof that they are able to pay
It is most likely that your cosigner will be required by the bank or lender to provide evidence of sufficient income and or assets that will allow them to cover the amount of the loan obligation in the event that you are unable to pay. If your cosigner is employed then they will be required to provide pay stubs or wage vouchers but if they are self-employed or own a business they will be required to provide income tax returns for previous years. Your lender or bank will only deny the loan application if your cosigner cannot prove that they are financially capable of paying the obligation.
The role of the cosigner
The main role of a cosigner is to help you the primary borrower to get approved for a car loan. If you are the primary borrower and your credit score is bad, your lender or bank may ask for additional things such as cosigner or a larger down payment to help you compensate for the credit risk. Agreeing to cosign a car loan comes with financial responsibilities as well. When a cosigner signs the document they automatically agree to take over payments if for some reason the borrower can’t make them.
For this reason, it is critically important that the cosigner is both willing and able to pay and is fully aware of the situation he or she is getting into before signing the contract. Being a cosigner is more than just signing the loan contract and agreeing to pay in the event the primary borrower cannot make the payments.
Cosigning affects both your history and credit score. In fact, once a cosigner signs the loan contract, their credit score is likely to drop a bit and the loan is listed on their credit report. If the loan is always paid on time however, it can provide a benefit to the cosigner’s credit over time.
What rights does a cosigner have on a car?
A cosigner can do a plethora of things to help boost the ability of a borrower to get approval on their car loan. However, beyond that, and the agreeing to make payments if the borrower can’t make the payments, the rights of the cosigner are limited. But this is not to say that the cosigner doesn’t have any rights at all because they do. Unfortunately or fortunately, the rights that cosigners have do not give them the ability to take ownership of the vehicle even if the primary borrower defaults on his or her payments. Similarly, the cosigner doesn’t own the car because their name is not on the title.
The rights of the cosigner usually come into play when things go wrong. In this case, most of the cosigner’s rights have to relate to processes that take place after the vehicle has been repossessed. When this happens you will realize that the cosigner shares many of the same rights as the primary buyer including the following:
- The right to receive written notice about the vehicle acquired on loan including:
- Notice of private sale and when it is taking place
- Right to redeem and when they can
- Notice of auction including where and when it is scheduled
- A description of any money that is still owed after the sale of the vehicle, or money owed to the borrower
- Right to reinstate, if applicable and when they can
- If a cosigner files for bankruptcy, the lender may not collect the money that is owed from them. However, if the primary borrower files for bankruptcy, the lender may still collect from the cosigner.
- If the lender doesn’t sell the repossessed vehicle in a fair and honest manner, following the standard resale practices put in place. A cosigner has the legal right to challenge the lender’s claim to a deficiency balance (money that is still owed).
- If either the primary borrower or the cosigner is in the military service at the time a lender tries to repossess the automobile or collect a debt from the cosigner, the cosigner may have some of the same rights as the borrower under the Servicemembers Civil Relief Act of 2003.
- If a lender repossesses the vehicle but fails to sell it, then the cosigner still reserves the right to not be sued for any loan balance.
Can a cosigner take your car?
If you are thinking of cosigning for someone or with someone, you may be wondering does a cosigner have rights to the car. The answer to this question is quite simple. No! A cosigner doesn’t have any legal rights to the car they have cosigned. Therefore, they cannot take the vehicle away from the owner. What they do have though is the same obligations as the primary borrower in the event that the loan goes into default. However, the lender is required to contact the cosigner to make sure the loan gets paid the situation gets to this point.
When you agree to cosign or when someone agrees to cosign for you then they are agreeing to share responsibility with the primary borrower. What this means is that when the primary borrower defaults or stops making payments altogether on the car, then the cosigner will be held responsible for making the payments so that the car doesn’t end up being repossessed by credit collectors.
In the event that a primary borrower defaults on the loan payments and the car is repossessed, this will gravely affect the credit score of the cosigner since they are also responsible for the loan. Since the credit score of your co-signer is likely higher than yours then any negative marks end up affecting their credit score even more.
For this reason, both the primary borrower and cosigner need to keep in touch regarding the auto loan. If possible, sit down and discuss any ‘what if’s’ that may come in the way of making the loan payments and then come up with a plan b if one or the other is unable to pay. If this is the case, you should both reach out to the lender before it is too late. Keep in mind that most lenders want to help borrowers avoid their car from being repossessed. Therefore, they may be able to help you and work with your situation.
I cosigned a car loan for my ex
Many things happen and relationship can change over time. If you are in a dilemma in which you consigned a loan for your significant other and now you have broken up then this is for you. If you cosigned an auto loan for your boyfriend, girlfriend or spouse and you are no longer together and you aren’t sure what to do about it, the good news is that there are options you can choose from.
While such a situation is tough, its occurrence is fairly common. It is quite obvious that no person cosigns thinking that the other party who is mainly responsible for paying the loan is going to be an ex and some point in the future. When such a change takes place, finances on both ends can suffer greatly.
The good news still remains that you can get your ex off a cosigned auto loan. As long as your ex is cooperative during the process, there are several options which you can consider including the following:
- Filing for bankruptcy
- Trading in the car
- Selling the car
- Refinancing the loan
- Keeping the car meaning that you will make the payments and pay it off yourself
- Allowing the bank or lender to repossess the car
Remember, most of these cases require that your ex cooperates with you to a certain level. However, if your ex is unwilling to cooperate then there are some things you can try including:
- Tell them they won – Many a times the reason your ex is being difficult is because they are trying to make a point. Giving them the satisfaction of thinking they won might actually make them, come around and be more willing to work with you. While it may suck to give them this satisfaction, think of the bigger picture if you want to get it over and done as soon as possible. This is also better than the alternatives.
- Involve a third party – Another way to go about is letting a mutual friend or acquaintance to mediate in the matter. Find someone who is vested in both your vested interest, happiness, and financial situation. However, be careful when asking for help and appealing for the third party to facilitate the conversation.
- Hire a lawyer – If they are still being stubborn even after involving a third party and letting them think that they have won, it might be time to involve the law. For a small fee, you can have your lawyer send a certified letter demanding that your ex makes good on their promise to pay for the vehicle or surrender it to you. A letter from your letter that is carefully worded can often give your ex a wakeup call and have them use their brains.
- Offer to pay them to go away – If worse comes to worst, then offer your ex some money in exchange for the car, the keys, and some paperwork. While it might suck to give them money, this might be cheaper than the other alternatives.
However, whatever you do her do not:
- Try to intimidate your ex by having people go and pay them a visit
- Make threats
- Tell lies to the third party about what is going on in the name of trying to make your ex to do the right thing
These things are not only illegal but counterproductive and can lead to your ex having a victory day in court.
What happens to a cosigner if a car is repossessed?
When someone who has good credit agrees to cosign a loan for a buyer then there are always risks involved. In this case, the cosigner shares responsibility for the loan with the primary borrower. What this means is that if the primary borrower defaults on the car loan payments then the bank or lender will consequently go after the person who cosigned the loan. However, what happens to this person is the worst happens and the vehicle is repossessed?
While repossession may not end the responsibility that the cosigner has to the auto loan, they may still be liable for money owed to the bank or lender. They, however, also have certain legal rights to which the lender must adhere. If a repossession occurs then the cosigner should get written notice making them aware of the repossession as well as the following things:
- Auction date and time
- The option to redeem
- Loan deficiency in total
- The option to reinstate
In the event that the cosigner is not provided with these written notices as a cosigner then they should immediately call their lawyer and discuss any legal recourse if they have.
How to remove a cosigner from a car loan
Many people despite their better judgments have co-signed for a family member, a person they are in a relationship with or a friend’s car loan. According to a study done by the Federal Trade Commission, 75% of these people have paid the price dearly by ending up paying for at least part of the cosigned auto debt.
If you want to remove or be removed as a cosigner, there are several possible options including the following:
1. Filing for bankruptcy
While this tends to be a great solution to many financial problems, ensure that you talk to your lawyer first to know the way forward. Filing for bankruptcy has its own benefits that most people don’t know of including the following:
- Contrary to common belief, filing for bankruptcy is not harmful to your credit rating. As a matter of fact, it is often easier to get a car loan off a fresh bankruptcy than it is to buy a car as a first-time buyer.
- If you file for bankruptcy, you stand a chance of recovering your good credit rating quicker than you think.
- In a lot of states, it is possible to file bankruptcy without having to lose any equity you may have in the money that is in your retirement accounts or other assets.
2. Refinance the car
If you want to refinance the car to get your cosigner off the loan then your local credit union is the first place to start. Either you or the cosigner is going to refinance the vehicle in one name.
3. Trade in the vehicle
Another option for removing your cosigner from a car loan is by trading in the car that is cosigned for a new one. If you already have a car, and the one you had co-signed belongs to an ex then you can trade in both your vehicles and to replace them in a two for one type of trade. For this to happen, however, your ex needs to sign an odometer disclosure form, a payoff authorization, and a few title transfer documents.
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4. Sell the vehicle
You can sell a car that you owe money on if you want to get the cosigner of the loan. All you need to do is find a buyer, agree on the price and then contact your lender to finalize the title transfer. However, in order to do this, you have to consult your cosigner so that they are aware of the proceedings.
The only downside is that you will need to be able to pay off the car loan in full meaning that the money you make from selling the car will need to cover the difference between the amount of the auto loan and the car’s price.
5. Allow the bank or lender to repossess the vehicle
If the other party is not willing to sign any documents or refuses to surrender the vehicle then let the bank or lender to repossess the vehicle. While repossession is a bad idea as far as credit rating is concerned it may just be your last result.
You need to understand, however, once the car is repossessed, the lender will auction it and then file a judgment against both the primary borrower and the cosigner for whatever loss they incurred as well the additional fees.
Before opting for this keep in mind that your credit rating has an effect on everything including the ability to borrow money, leasing an apartment, getting a job as well as your car insurance premium. Yes, this may not be fair, but credit ratings impact you in numerous subtle ways.
6. Keep the car and make the payments
If you are unable to sell the car, refinance or trade it in, then you can always keep it and make the payments. However, you need to make sure that the other party signs some sort of agreement stating that they have no interest in the car whatsoever. It is advisable that you hire a lawyer to create an agreement for you stating that the other party has no interest in the car whatsoever. If you are the main borrower however, you will need to prove that your credit score has improved and you can pay the loan on your own.
Whether you are the cosigner who wants to be removed from this agreement or you are the borrower who needs to remove the cosigner from this agreement, you now have the vital information to do so. Good luck!