When many people get an auto loan, they do so because they have someone willing to act as a cosigner. Usually, this is done when the person seeking the loan has no credit history or poor credit history. However, as payments are made, and credit standing improves, they may want lower interest rates and lower monthly payments. To do so, they will need to refinance. Yet what happens if they want to refinance without a cosigner? Here are the details.
Releasing the Cosigner
According to Lantern by SoFi, some lenders allow a cosigner to be released from an existing loan agreement. This will shift the loan’s liability to the principal borrower, but only after they have met specific criteria. To accomplish this, the principal borrower must prove to the lender that they have the financial resources necessary to pay off the loan.
It Doesn’t Happen Overnight
It does not happen overnight when an individual wants to refinance their car loan without having a cosigner. Most lenders will not even consider this option until the person has made at least two years of on-time payments on their current loan. It can sometimes be challenging to convince a lender to approve refinancing, especially if the person had a poor credit history beforehand.
Interest Rates May Still be High
When wanting to refinance, people should always look at the average car loan interest rate before coming to a conclusion. If they required a cosigner for their original loan due to a low credit score, some lenders may still allow for refinancing but will still bring forth new loans with higher interest rates than the person may have expected. Thus, before refinancing, individuals should determine if they will actually save enough money to make it worth seeking a new loan.
Refinancing with a New Lender
If a person’s current lender is not open to the possibility of refinancing, one option to remove a cosigner is to seek out refinancing from a new lender. Should they be able to get a new auto loan that is only in their name, the old loan agreement will be voided, with the debt being removed from the cosigner. If a person’s credit score has improved tremendously since they received their initial loan, choosing to work with a new lender can make all the difference.
Pay Off the Loan
The simplest way to remove a cosigner from an auto loan is for the principal borrower to pay off the loan in full. If their financial situation dictates this is possible, this can get rid of the existing loan and allow the person to seek out a new loan with better terms. When wanting a new vehicle, this is a wise option.
When borrowers’ credit scores improve over time, refinancing makes good financial sense. Refinancing and removing the cosigner can significantly improve their situation rather than being at the mercy of higher interest rates for several more years. Look for potential financial institutes to get vehicle refinancing solutions.
