Cosigning on a Car Loan
Cosigning a car loan for a friend or family member can be a great gift for them. By lending them your good credit, you help them get a loan that they might not otherwise qualify for, or you help them save money by enabling them to get a lower interest rate than what they could get on their own. Cosigning may have a drawback, though. When you cosign, you become responsible for that loan, and its payments become part of your credit report and part of your total debt load.
This can make it harder for you to borrow in the future. If your partner in the loan doesn’t follow through on his or her obligations, your credit can be harmed. There are ways to get out of a cosigned account, though:
Help the other person on the loan improve his or her financial habits. By establishing a habit of paying on time and being responsible with credit usage, he or she can show lenders evidence that they are a low credit risk. With improved credit, they may not need you to cosign for them.
Talk to the lender. While the car lender has no reason to take you off as a cosigner, it won’t cost you anything to ask. Realize, though, that the lender probably won’t want to take you off if the loan isn’t being paid on time or if the other person on the loan hasn’t improved his situation.
Have the car owner refinance the car loan by him or herself. A refinance loan will pay off the old loan that you cosigned, getting you out of responsibility for it.
Pay off the existing loan more quickly. Having your partner make extra payments will accomplish this, although you might also choose to chip in to pay it off sooner.
Be your own refinance lender. When you do this, you pay off the original loan completely and work out an arrangement with the car’s owner to pay you. Doing this doesn’t get you off the financial hook for the loan, but it will show up as “paid in full” when you check your credit report.
Sell the car. Consider selling the car for an amount that allows you to pay off the loan balance. You need the permission of the person that cosigned the loan to do this, as both of your signatures will be required to sign over the title. Selling the car should be a last resort if the person you are cosigning with cannot afford the car loan and is damaging your credit as a result.
About the Author
Solomon Portesky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc., an Experian company. © 2014 ConsumerInfo.com, Inc. All rights reserved.