It is very unlikely that your lender will allow you to remove a co-signer from your auto loan without applying for a new loan by yourself. Your current loan terms were based on your co-signer's credit and income. Your lender may allow you to refinance your car loan, or you can choose a different loan provider.
Loan Terms
Your current loan terms are based on information obtained from your co-signer's credit report. Good-credit borrowers may obtain up 120 percent of a vehicle's value, while someone with poor credit might obtain as little as 60 percent. Your co-signer likely increased this lending percentage, known as a loan-to-value ratio, to decrease down payment requirements. Lenders also consider your co-signer's income, as he is just as responsible for paying back the loan as you are. With little income or high debt, you might not have obtained a loan approval by yourself. For these reasons, removing a co-signer is unlikely, as doing so changes the lender's risk and can result in non-payment.
Refinance Process
To find out if you can obtain a loan approval without a co-signer, apply to your own lender to qualify for a loan in your own name. If your loan provider doesn't offer a refinancing option, apply elsewhere for your current loan's payoff amount. Call your lender to obtain the payoff amount and prepare to provide your vehicle's information to a potential lender. Have your vehicle identification number (VIN), mileage, year, make and model ready to provide for your application. You'll also provide your credit, income and employment information. If approved, your new lender will pay off your old loan.
Co-Signer Approval
You must have your co-signer's approval to refinance. As the vehicle's titled co-owner, your co-signer doesn't have to agree to release his loan responsibility and ownership. Ask your co-signer if she will sign the title to release her ownership once you obtain a loan on your own. To sign the title, your co-signer might have to go the lender if your state sends vehicle titles to lien holders. If your co-signer has moved out of state, you'll have to wait for her to sign documents and mail them back before you can complete the refinance.
Refinance Considerations
If you obtain a loan approval, consider your overall loan payback amount and budget. If your credit hasn't improved since you initiated your original loan, you might obtain a restricted loan approval because of your lending risk. Interest rates are as high as 29 percent in some states, and a lender can choose to decrease your loan-term options. A high interest rate and shorter loan term can result in a substantially higher car payment. You may want to wait to remove your co-signer if the terms of a refinance are unfavorable.
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