How To Get Out of Being a Co-Signer on a Loan
While co-signing can help a loved one get a car loan or other needed credit, this responsibility becomes an issue if that person can’t cover the payments. You might want out of the arrangement to protect your credit and finances.
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While there are options, you’ll usually need the borrower’s cooperation to pursue them. Here are potential ways to get out of being a loan co-signer.
Check for a Co-Signer Release Option
Especially if you co-signed a car or student loan, the loan contract might mention a co-signer release option. But this is often a challenging route, especially if the borrower has already missed payments. Lenders will look for a strong payment history and proof that the borrower can afford the payment amount without you as a backup.
The borrower must contact the lender who can provide more details and ultimately decide whether to approve the co-signer release. The lender usually provides a form that the borrower completes with their financial information and specifies you as the co-signer to remove.
Consider Consolidation and Refinance Options
The borrower could apply to refinance the loan you co-signed or get a consolidation loan to pay it off. Once the original account is paid off and closed, you’ll no longer have any responsibility since the borrower will be fully liable for the new loan. This is useful when the borrower’s income and credit history make them eligible for a new loan without your help.
Along with removing you as a co-signer, consolidating or refinancing can benefit the borrower. For example, their current financial situation could now qualify them for a lower interest rate or more affordable monthly payments. You can discuss these perks when you bring up the idea.
Pay Off the Loan
Simply paying the loan off as soon as possible can break you free from your co-signer responsibilities. This is best when the borrower has enough funds and agrees to the payoff plan. However, you might choose cover the amount yourself if the financial risk of remaining a co-signer is too high.
If the debt is tied to an asset like a vehicle, selling the asset may be useful for getting payoff funds. Just make sure the account is closed after the loan payoff so that the borrower doesn’t take on more debt.
Explore Other Options
If these options aren’t available right now, you can take steps to protect yourself while you remain a co-signer. The key is communicating regularly with the borrower about their ability to handle payments.
For example, you might agree to contribute money to keep the payments current and avoid a bad credit history. The borrower can also ask the lender about relief options, such as a hardship deferment or temporarily lowered payments.
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This article originally appeared on GOBankingRates.com: How To Get Out of Being a Co-Signer on a Loan
