Getting a loan is not always easy. This is why a lot of times people need others, like friends or family members, to co-sign for them. This is a delicate subject, as a recent report from the Consumer Financial Protection Bureau found that primary borrowers could face an “auto-default” if a cosigner dies or goes bankrupt. However, to remove a co-signer from a loan can also be difficult.
Whether the loan is for a house, a car, or even a university, the co-signers are the lender’s insurance policy in case the primary borrower can’t repay the debt. So, if you are currently looking for a way to get a co-signer released, it doesn’t matter if this person is you or somebody else, CredHelper has all the necessary answers to guide you step-by-step.
What you need to know about remove a co-signer from a loan
Most of the time, the terms of a co-signed loan can’t be undone. So, in order to remove a co-signer from a loan, it must be paid off or refinanced, with or without a new co-signer.
Also, banks and lenders in general don’t have a legal obligation to remove a co-signer from a loan, and it is usually up to them to decide if they want to grant the release or not.
When a lender allows co-signer release
On the other hand, in some cases, like student loans, there may be a provision that allows to remove co-signer from a loan. However, the most common types of loans don’t include such a provision.
In this situation, the lender’s decision will normally depend on the responsibility of the primary borrower with its income, credit history, and on time payments, increasing the chance of the release.
Step-by-step: how to remove someone from a loan
To remove a co-signer from a loan, you need to know that, if there is a balance remaining, it must be refinanced. In this case, the primary borrower could qualify alone, or find a new co-signer.
Step 1: find an attorney
Getting help on this subject on the internet may feel tricky, so the best thing to do is to talk to an experienced consumer protection attorney to clear all of the doubts you may have.
Step 2: refinance or sell assets
The primary borrower can refinance the loan in their own name, sell the asset bought —as they are in their name—or sell other assets they have in order to be able to pay for the loan.
Step 3: pay for the loan
A loan affects the co-signer’s credit score and ability to get loans. So if the primary borrower is not willing to do any of the above, the co-signer has to make sure that payments are made on time.
Step 4: ask the lender for forbeance
If something prevents you from paying, you can seek a forbearance period from the lender to temporarily pause the payments, even though it does not forgive the loan. When the debt is paid off, close the account.
Requirements lenders usually ask for
To remove a co-signer from a loan, the lender may ask for a formal request. Those are often required to be submitted in writing. Also, there may be additional necessary paperwork.
However, it will depend on how the removal process will happen, so consult an attorney.
Common mistakes during the removal process
In some cases, co-signers are not shown on a title, so they don’t really have to be removed because only the lender is listed. However, this doesn’t mean that they don’t have any obligations.
It it very important to know that if the unpaid debt is turned over for collections, the co-signer will hear from a collection agency and could even be sued for the amount due, besides attorney fees and court costs.
Is it a good idea trying to remove a co-signer from a loan?
There are a lot of reasons for someone to want to remove a co-signer from a loan or to be removed themselves.
Some of them may be because the primary borrower is not paying their debts on time, causing problems for the co-signer. Besides that, another possibility could be the need of the co-signer for a new loan of their own.
Also, if interest rates have gone down, the primary borrower could refinance and get a lower rate. They could also have more money, which is normal in case of a student loan for college, for example.
At last, if all payments were made on time, the primary borrower may eliminate the need for a co-signer and be able to continue the payments on its own responsibility.
All of these things considered, if you are ever asked to co-sign for someone, ask yourself if you are willing and able to pay off their debt if they don’t. Sometimes, it is better to offer money not to damage your credit.
