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How to remove yourself as a cosigner on a loan
You usually need the borrower's permission first.
There’s no way to take yourself off of a loan you cosigned on your own — you’ll need the borrower to be on board. And if you plan on transferring the debt solely to the borrower, they’ll need to meet the eligibility requirements on their own. This means you’re likely out of luck if they have bad credit.
1. Refinance or consolidate
One of the most common ways to get yourself off of a loan you cosigned is to ask the borrower to refinance the loan or consolidate it with other debt. This involves taking out a loan solely in their own name, which they use to pay off the current balance.
Refinancing or consolidating means they’ll need to be able to meet eligibility requirements on their own. If they don’t have strong credit or a high-enough income, they might have a hard time qualifying for a competitive rate. In that case, it might be better to wait or opt for another option.
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2. Transfer the balance to a new credit card
Is the remaining balance low enough to pay off in around a year? You might want to suggest the borrower apply for a balance transfer credit card with a 0% intro APR. They can use this to pay off their loan balance, which they won’t have to pay interest on during the promotional period.
It’s a more affordable option than paying off the entire balance at once, which could make it more attractive than refinancing. But they’ll typically also need strong credit and a steady income to qualify.
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How to remove a cosigner using a balance transfer
Follow these steps to complete a balance transfer so your cosigner is no longer attached to your loan:
1. Compare balance transfer credit cards and apply
Compare offers to find a balance transfer credit card with the lowest rate —ideally 0% — for as long as possible. Some cards offer 0% intro periods for as long as 21 months if you have great credit.
2. Transfer your loan balance to your new card
Follow your card issuer’s instructions to transfer your loan balance and any other debt to your new card. Since this means your loan will be paid off completely, your cosigner will no longer be tied to this debt.
3. Ask about cosigner release
Some types of loans come with the option to apply for cosigner release — especially private student loans. With cosigner release, the borrower has your name taken off the loan, either while keeping the same rates and terms or with an adjustment based on their finances.
To qualify for cosigner release, the borrower typically must meet the lender’s credit and income requirements on their own. Some lenders require a one- or two-year history of consecutive on-time repayments as well.
Most lenders that offer cosigner release don’t advertise it. It’s best to get in touch with the lender after you ask the borrower and they agree to apply.
4. Sell the asset you financed
This option only works if you took out a loan to purchase something — like a car. If the borrower can’t qualify for another loan on their own, one option is to sell the item they used the loan to purchase. After the sale, you can put those funds toward paying off the loan balance.
There are two steps you should take first if you’re considering this option:
- Check the contract. Make sure there’s no prepayment penalty for paying off the loan early, which often means you’d have to pay the equivalent of any unpaid interest.
- Get your asset appraised. This is especially important with assets that depreciate over time. If the borrower’s car is worth less than the remaining balance of the loan, you’ll still have a balance left over after the sale.
5. Repay the balance yourself
As a last resort, make extra repayments toward the loan yourself. It won’t help you save, but it’ll get you off the loan faster. What’s more is you don’t need the borrower’s permission. This could be useful if you’re trying to get rid of debt before applying for credit yourself — having less debt can increase your credit score.
Again, check to make sure there are no prepayment penalties before making extra repayments.
When is the best time to take my name off a loan?
That depends on the situation. If you’d like to free yourself up to take on other types of debt, it’s best to wait until the borrower is able to carry the loan on their own. This might mean giving them a few years to build their credit, establish a history of on-time repayments and increase their income.
But if your financial situation has changed for the worse — or you’ve ended up shouldering most of the repayments — you might not want to wait. Talk to the borrower about their options. In a pinch, they might be able to refinance with another cosigner if they can’t qualify for a loan on their own.
What happens after I’m removed from the loan?
Several things can happen after you’re removed from the loan:
- You aren’t responsible for repayments. There’s no longer a risk that the borrower will pass off the responsibility of repaying the debt to you.
- Your credit score increases. Paying off debt means you’ll have a lower credit utilization ratio, which is the second most important factor in your credit score.
- Your debt-to-income (DTI) ratio decreases. Since you aren’t accountable for repayments each month, you’ll have a lower DTI. This can also make it easier to qualify for a better deal when you apply for credit.
Bottom line
The only way to take yourself off of a loan as a cosigner is to repay the balance yourself. Otherwise, you’ll have to ask the borrower to take steps to remove you as a cosigner. You can learn more about how repaying loans work by checking out our guide to personal loans.
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