A joint auto loan is a loan in which two people share the rights and responsibilities of a car together. Together, both borrowers are known as co-borrowers. Co-borrowers are both financially responsible for the vehicle, and both parties' credit scores and incomes affect loan approval.
Whatever your reason for having a joint auto loan, there sometimes comes a point when one or both people want to get out of the loan, perhaps due to divorce, separation, or financial difficulties. If this happens you may no longer want your name on their car loan, or vice versa, but in order to remove a name from a joint car loan, you or your co-borrower typically need to refinance.
Cosigner or Co-Borrower?
Do you have a cosigner or a co-borrower? If you have a co-borrower you're in a joint auto loan with another person.
If you truly have a joint auto loan, then the two people involved in the loan are known as co-borrowers. You both would have taken the loan out together, and both are responsible for making payments, and both of you are penalized if the loan defaults. Since lenders combine your income for the purposes of approving the loan, in most cases co-borrowers are spouses.
If you have a cosigner for your loan, they don't share your rights and responsibilities to the vehicle, and they have no legal right to the vehicle. Cosigned auto loans aren't considered joint auto loans.
When you have a cosigner on your loan it's typically because you couldn't meet the necessary credit requirements on your own, or your credit score was lower than the lender would have liked. A cosigner is someone who has a good credit score that can in effect vouch for you, and promise to make payments if you cannot. Cosigners don't have to be your spouse or partner and are typically friends or family members that agree to help.
Whether you have a cosigner or co-borrower, both are responsible for helping you with the loan in some cases, and both have their credit scores affected by what happens on the loan. However, a cosigner is only a backup for your lender. The lender won't come to them unless you miss a payment.
A co-borrower, on the other hand, is on the hook right from the start. If a payment is missed, the lender will come to both you and your co-borrower to collect the money.
Removing a Co-Borrower from a Car Loan
A co-borrower is generally a spouse and co-owns the vehicle with the primary borrower. Unlike a cosigner, a co-borrowers name is listed on the title, and they share equal rights to the car. Also, you can combine incomes with a co-borrower, which means removing them isn’t as easy as simply refinancing.
In the event you and your co-borrower no longer want to share the vehicle, and you plan on being the sole owner, you need to take steps to refinance to remove the co-borrower from the loan. Make sure you’re able to qualify for the auto loan by yourself and can meet the lender’s income requirements on your own.
Refinancing to Remove a Co-Borrower
In order to refinance to remove yourself or a co-borrower from the car loan, the person who is becoming the primary borrower will have to apply to refinance the loan. This means meeting several requirements.
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Good or improved credit score.
Having good credit, a FICO score of around 670 or better, is required in many cases. However, if you took out a subprime auto loan, you may be considered if your credit score has improved. -
Be current on your loan.
Most lenders require your loan to be current and in good standing, with a record of on-time payments. Your loan must be at least one year old, and not be too close to payoff. -
Acceptable loan amount.
Lenders each have their own rules about what's an acceptable loan amount. Generally, if you still owe too much, or are close to finishing your loan you may not be able to refinance. -
No negative equity.
Your vehicle must have equity or at least break even, meaning you can't be underwater on your loan if you want to refinance. -
Vehicle age and mileage.
Your car must fall within the lender's range on acceptable age and mileage. These vary by lender, but most prefer to refinance vehicles that are in good condition.
Keep in mind that there are pros and cons to removing someone from a loan, and each person may be affected differently. Remember, with a joint auto loan, you both own the car and will need to cooperate in order to refinance the vehicle and title the car in the sole person's name. After removing a co-borrower from a loan, the remaining borrower may see their credit score impacted and will be solely responsible for payments.
Don't Forget To Retitle Your Car
Once you've refinanced and are the sole borrower on the loan, you can apply for a brand new title and registration with just your name on it. In order to do this you typically need to go to the Secretary of State or Department of Motor Vehicles to get a new copy of your title listing you alone.
Typically, once the original loan has been paid off through refinancing, the lender will send a release of lien letter that states who the primary borrower is, and you can take that to your DMV and apply for your new title.
In most cases, a car title only takes a little while to come to you, but the process can vary by state. If you don't have your title or didn't receive it after you refinance, you may be in a non-title-holding state, where the lender retains your title until the vehicle is paid off. If you live in a title-holding state, you should receive your copy of the title in the mail shortly after the vehicle purchase.
Removing a Cosigner from a Car Loan
A cosigner is someone who lets you "borrow" their good credit in order for you to get approved for financing. Even though their name is on the loan, cosigners don’t share ownership rights to the vehicle but are responsible for paying for it if you miss payments or default. Whatever the reason for having a cosigner in the first place, you have to refinance your car loan if you want to remove them.
Cosigners can’t take themselves off the loan. In order to remove a cosigner from an auto loan, you need to take steps to have them removed from the loan. You can typically do this by requesting a co-signer release, refinancing the loan, or selling the car and paying off the original loan. Refinancing is the most common way to remove a cosigner from the loan. Since a cosigner isn't listed on your title, you don't have to worry about getting a new one once you've removed them from the loan.
Refinancing to remove a cosign
You usually need to make sure some time has passed and that your credit score has improved so you can qualify to refinance the loan and go without a cosigner. In order to refinance, you'll need better credit than when you started if you originally took out a bad credit auto loan. Most lenders like to see that around two or three years of on-time payments. You also need to qualify for the auto loan by yourself by meeting the lender’s other refinancing requirements such as income, loan, and vehicle requirements.
You don’t need the cosigner with you to refinance, but you should let them know that you plan on removing them from the loan, since the closed car loan will be listed on their credit reports.
Cosigner release
In some cases, if your lender allows it, you can contact them and request that a co-signer be released from the loan instead of refinancing. Be aware, however, that if you needed the cosigner for loan approval, removing them may impact your interest rate and/or loan term. Just like with refinancing, you have to show a positive payment history. Not all loans have a co-signer release option, so it's good to be aware of this from the start, but if they do, this is often the easiest way to remove a cosigner.
Sell the car
The final way to remove a cosigner from a car loan is to sell the vehicle and pay off the original loan. Once your auto loan is paid off, both you and your cosigner are released from liability. This is the least common method to use since it involves getting a different vehicle, which could be difficult if your situation has changed since you originally took out the loan.
The Bottom Line
Refinancing is typically the go-to move for removing a name from a joint auto loan. However, refinancing takes many steps to qualify for and typically good credit is the first requirement. If you're struggling with credit, your score should be at least higher than when you first took out your loan with a cosigner or co-borrower.
You also need to make sure that you don't owe too much or too little on your car, since lenders won't often refinance a car loan that's too new or too close to being paid off. If you're not sure where to start your refinancing journey, we want to help. We have a large network of refinancing lenders that are ready to get you into a new loan.
But, if you don’t qualify for auto financing on your own right now, and you want to remove a cosigner or co-borrower from your joint car loan, your best bet is to wait until you improve your credit situation. Then, once your credit score is higher than when you originally took out the loan you can apply for a new auto loan to replace your current joint loan.
