How to Get Out of a Co-Signed Loan

How to Get Out of a Co-Signed Loan

Whether you co-signed a Loan for your friend, family or relative, there will time come when you want to be free from being  co-signer of Loan. When you co-sign for a Loan, then automatically you become joint applicant for the Loan. In this way if other person misses a payment then you will be responsible to make the payment. The payment history will be reflected on both of your credit reports.

Co-signing for Loan will impact on your chances of getting approved for a mortgage or Auto Loan for yourself. Until the Loan you co-signed is not paid off, it will count toward your Credit ration. Lenders will also look at it when you will apply for any type of Credit, even Credit cards. Main drawback for co-signing is that if  co-signed Loan increases your debt-to-income ration or the percent of Credit you owe versus your available limits, it will hurt you if you apply for Credit.

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How to get your name off from co-signed Loan?

You can get off your name from co-signed Loan when your friend or relative had made on-time payments for about six months to a year on their Loan and had applied to refinance the Loan in their name. When the part of the Loan is being repaid and the balance is lowered, then the total lower amount will be easier for them to get approved without co-signer.  For that they will have to apply with their bank, Credit union or other lender to refinance the Loan. Finally when new Loan will be on their name you will be off from the current Loan.

This will benefit your friend or relative with whom you had co-signed for Loan. Because they will be able to lower their interest rate and that will save them money. They will make now payments themselves and it will increase their Credit score.

The benefit which you will get is that burden from your shoulders will be off. Now whether they don’t pay you won’t be responsible anymore. Keep in mind for re financing Loan your friend or relative have to do it through a new lender.


You may be asked to cosign for a Loan by a friend or family member, regardless of your Credit rating. Before you respond, think about the situation. You are legally responsible for the Loan if you or your cosigner fail to pay it. This could affect your credit score and your chances of obtaining a line Credit in the future.

The Federal Trade Commission states that 75 percent of cosigners repay a Loan if the primary borrower defaults. There are steps you can take to get rid of your cosigner status and reduce your liability if you have already taken out a Loan.

Ask for a release of cosigner

Lenders will let you file paperwork to remove a cosigner from a Loan in certain cases, like if you have signed a private loan with your children. You must have shown responsibility for the Loan by making regular payments on time and keeping a high debt to income ratio. The Consumer Financial Protection Bureau has provided a sample letter to help you with this request. The release does not have to be approved by lenders. To determine if this is possible, you might want to review the Loan documentation.

Refinance the Loan

If the primary borrower has changed and is able to qualify for a personal Loan or personal line of Credit, you can ask them to refinance their Loan to consolidate their debt. This will replace the original Loan. The primary borrower may agree to this option, despite having to accept responsibility for their finances. If they have to lower their monthly payment, they may choose to refinance the debt over a longer period.

The asset can be sold

You may be able sell the asset to repay the Loan if it is an asset that you own rights to such as a Car. If the primary borrower is listed on the title, you will need their buy-in for this option. It’s easier to liquidate the asset, and pay the Loan, if your name is also on the title.

Transfer the balance

You can suggest to the primary borrower that they transfer the unsecured debt if the Credit card offers a zero annual percent rate for an introductory period. They could be able to pay the debt off over a longer period of time and avoid interest. This can help them to build their Credit and prepare for the future by adding another Loan to their Credit mix.

You can pay it off with your own money

Although this may not be the most appealing option, it can help you to pay off the Loan on your own. Sometimes, the primary borrower didn’t pay back the Loan. The lender then comes after you. The balance may be subject to penalties or late fees that could make it even more expensive. This is a costly lesson that you won’t be able to learn again.

What is the 50/30/20 Budget Rule?

It is difficult to refuse a relative in financial need. You could offer them a personal Loan, which they will repay directly, if you have enough savings. This way, you won’t be putting your Credit at risk.

Don’t lend money that you don’t have the means to repay. It can be awkward to mix money and friendship. Make sure you understand the risks before signing a cosigner agreement. It is not a good idea to lose both money and your relationship.