When you sign an auto loan with a co-borrower, you’re both responsible for making the car payments. If one of you stops paying, or becomes unable to pay, the other is expected to pick up the slack.
How Co-Borrowers Work on Car Loans
When you bring a co-borrower along for the ride on an auto loan, both of you agreed to share responsibility for the car payments. Both of your incomes are combined to qualify for the loan. Along with the shared responsibility of paying off the vehicle, both of you also have your names on the car’s title, and, therefore, equal rights to it.
If one of the co-borrowers stops paying, you both run the risk of damaging your credit scores and credit reports, and defaulting on the loan.
Remove a Co-Borrower From an Auto Loan
If your co-borrower stops paying on the loan, for whatever reason, you’ve got a few options if you want to remove their name off the auto loan and title.
Here are three routes you could take:
When you refinance a loan, you’re replacing your current contract with a new loan on the vehicle you already have. This is one way to remove a co-borrower from a car loan. Most borrowers refinance to lower their monthly payment, but it’s also possible for borrowers to remove a cosigner or a co-borrower in this way.
To refinance an auto loan, you have to meet some requirements. First, you must have equity in the vehicle, and have had a good payment history on the loan. Your car needs to meet some requirements too; these vary, but the vehicle generally needs to have less than 100,000 miles and be less than 10 years old. Your credit score should also be better than what it was when you originally took the loan out, and you must have enough income to pay for the loan yourself.
The biggest concern with removing a co-borrower is that they’re added to help meet income requirements so you could qualify for the auto loan in the first place. If you remove a co-borrower’s income from the equation, and the lender finds that you can no longer afford the car loan by yourself, you aren’t going to qualify for refinancing.
However, when you refinance, you sometimes have the option of extending the loan term to lower your monthly payment. Be advised that extending your loan and keeping the same interest rate means that you’re going to pay more in interest charges. Aim for lowering your interest rate, since this is the ideal way to refinance since it actually saves you money during the loan term, and it can lower your monthly payment at the same time.
2. Sell the Car
If you don’t qualify for refinancing, or neither of you can afford the monthly payment anymore, it may be time to sell the vehicle. It’s better to be proactive about selling it if other options aren’t available, since missed and late payments on the auto loan can do serious damage to both of your credit scores.
If you have equity in the car, this could mean trading it in for something else and using it as a down payment on a cheaper vehicle. Be sure to bring the co-borrower with you to sign off on the title. If they don’t sign the title when the car is sold, the co-borrower would still have rights to it and the sale isn’t legitimate.
3. Settle in Court
This could be considered the last resort, but you can attempt to settle things in court. Couples who were co-borrowers on big items like houses and auto loans then later divorce often have to split up finances and arrange payments on their shared responsibilities.
You may be able to reach an agreement where the co-borrower is ordered to pay a share of the vehicle, or something along those lines. But just know that if they don’t pay (even if ordered in court), any missed and late payments can still impact your credit score, since both of you are still tied to the car loan.
It can get sticky when you’re a co-borrower and things start to fall through the cracks. Things happen, and sometimes don’t work out the way you wanted. However, you shouldn’t let it stop you! Even borrowers with bad credit, no credit, or unique credit situations still have auto loan options.
If you’re ready to get into your next vehicle, but you need a lender that can work with your situation, start with Auto Credit Express. Here, we match borrowers to dealerships in their local areas that have the bad credit lending options they need. Begin by filling out our free car loan request form, and we’ll get right to work!