A co-signer is someone who secures your loan with either his income or good credit standing. People need co-signers for various reasons, so the time it takes before you can re-apply for a car loan depends on your own credit issues. To determine when you can refinance your car loan on your own, consider why you had to use a co-signer in the first place.
Income Issues
Some buyers need to use a co-signer because of income issues. If you don't make enough money for a loan approval, your lender considers your co-signer's income along with yours. If this is the reason you needed a co-signer, you can likely refinance your vehicle after your income increases. Most lenders prefer at least two years of verifiable and steady income. If you used a co-signer for this reason and your income has increased, try to refinance your car after six months to one year of steady and provable income once your income increases.
Debt-to-Income Ratio
Lenders decide loan approvals based on a borrower's debt-to-income ratio. Based on the information obtained in your credit report and your income, a lender decides how much you can afford to pay toward your loan each month. Even if you make more money than average, you aren't guaranteed a loan if you have a high debt responsibility. For example, if you already have a car payment, a mortgage and several credit cards that require a payout of $2,000 per month and you make $2,500 per month, your debt-to-income ratio is poor. Refinance your vehicle once you pay off other debt and increase your available funds.
Poor Credit History
If you have poor credit, it can take years to improve your rating. Items listed on your credit report, such as repossession, bankruptcy, foreclosure or judgments, can substantially reduce your credit score and chances of securing credit. Most of these issues remain on your credit report for at least seven years. Pay off your debts and prove to lenders that you can make payments consistently and on time with your current car loan. The amount of time necessary to improve credit differs by person and payment history.
Budget Considerations
You may find that you can currently refinance your loan. But the terms may not be favorable. You might obtain a higher interest rate, have a large down payment requirement or term restriction, which lenders may require as a term of approval. A shortened loan term or high interest rate can increase your monthly loan payment by more than $100. To stick to a budget and save money over the term of your loan, you may want to keep your current loan co-signer because of the loan terms you've already secured.
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