When you are just starting and need to buy a car or rent an apartment, you often cannot qualify on your own. Perhaps you have bad credit due to a series of unfortunate circumstances or you simply do not have enough of a credit history to have a score at all. In any of these cases, co-signers allow you to secure a loan or lease. When they sign that lease along with you, it means they are backing up your ability to pay on that loan.
It also means if you default on that loan, they are liable for the charges.
While it is much easier to be removed from a loan when the borrower agrees to it, this does not always happen. Thankfully, there are several ways in which removal from a co-signing situation is possible. However, it is important to note that many of the ways to remove a co-signer are dependent on the borrower’s credit score. If the original borrower’s credit score is not healthy, you may not be able to remove yourself from the lease or loan without first paying off the balance.
Be Careful Before You Co-Sign
Even if your closest friends or family ask you to help them out, consider the overall situation. If you are deliberating about becoming a co-signer for someone, talk to that person first. Be sure your potential borrower has a reliable plan to pay back whatever loan he or she is attempting to take out. If you find the plan to be hasty or ill-conceived, refuse to sign. Explain your reason for refusing to act as a co-signer.
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Often, explaining that your credit can be impacted by their default on payments is enough to get you through the awkward conversation. Additionally, if you are co-signing with family, this can put undue strain on your relationship, doing more harm than good in the end. Always evaluate potential co-signers and the lease or loan he or she is attempting to apply for before signing any papers.
Transferring the Loan Balance to a Zero Percent APR Card
This method is dependent on the borrower improving his or her credit. If he or she does get approved, moving the loan debt onto a zero percent APR card is preferable. This allows the borrower a window of time to pay off the balance without interest fees raising the price. There may be an initial fee when you transfer the funds, which can vary depending on the card and the transferred lump sum. If this is the route you are exploring, evaluate all available cards before reaching a decision.
Release the Loan
Depending on the lender, you may have the option of obtaining a release from the loan. This process requires a certain number of on-time payments to be made beforehand. Additionally, the borrower’s credit score must reflect a certain level of credibility before you can obtain a release. If borrowers do not appear to be trustworthy, you may not be able to obtain a release. If a borrower passes the requirements, a co-signer can write a letter requesting a release and send it to the lender.
Remove Your Name From the Account
While this is an option, it is one of the most difficult ways to be removed as a co-signer. In the event that the borrower’s account has no current balance or outstanding debt, you can remove yourself from the loan. However, creditors will evaluate the original borrower’s credit score to determine risk factor for future loans. Before co-signing for a loan, check a lender’s policies to determine if this is a viable option in the future.
Pay Off the Balance
In the event you co-signed with a borrower who is not making payments or is rehabilitating a poor credit score, you may not be able to avoid paying off the balance. It is irritating, but if other avenues to remove yourself from a lease or loan have been declined, you may have no other choice. Once the loan is paid off, you will be able to ask to have your name removed from the current agreement, or you can simply close the account.
Consolidate or Refinance
Consolidation of a loan combines multiple outstanding debts into a single debt. This is helpful for any borrowers who have problems making multiple payments at once. When you decide to take out a refinancing loan, you are essentially making a new loan out of multiple debts.
When the new loan is created, you can opt out of being a co-signer on it as long as the borrower can qualify for an independent loan on his or her own. Otherwise, the consolidation loan still has your name attached to it.
Sell Off Assets
When you have co-signed on a loan like a car loan, selling off the asset is an option. Once the car is sold to someone else, you can secure your release from the lease. However, you need to be the one with your name on the title of the car. Otherwise, the borrower has to agree to sell the car. In the event that you co-signed on a transfer-eligible car, you can use legal sites to sign the lease over to someone else.
Divorce and Co-Sign Arrangements
Unfortunately, getting divorced does not remove your obligation to pay on a loan, whether that loan is for a car, credit card or home. Many believe that the divorce decree specifying marital debts to be discharged to one or the other spouse removes this responsibility, but current laws state that the lender does not have to honor this decree.
If you are planning to divorce, ask the judge to require your ex-spouse to refinance the loans in his or her name only. This is the only way you are removed from the loan obligation. In the case where you want to retain ownership of the home or vehicle, then you must do the refinancing and leave his or her name off of the document.
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