When you take out an auto loan with a co-borrower, you are both responsible for making the payments for the car. If either of you stops paying or becomes unable to pay, the other should take over.
How co-borrowers work on auto loans
When you bring a co-borrower with you for a car loan, you have both agreed to share the responsibility for car payments. Your two incomes are combined to be eligible for the loan. In addition to the shared responsibility for reimbursing the vehicle, you both have your name on the title of the car and, therefore, equal rights to it.
If one of the co-borrowers stops paying, you both run the risk of damaging your credit scores and reports, and defaulting on the loan.
Withdraw a co-borrower from an auto loan
If your co-borrower stops repaying the loan, for whatever reason, you have a few options if you want to remove their name from the car loan and title.
Here are three routes you can take:
When you refinance a loan, you are replacing your current contract with a new loan on the vehicle you already own. It is a way to withdraw a co-borrower from an auto loan. Most borrowers refinance to reduce their monthly payment, but it is also possible for borrowers to withdraw a loan. co-signer or co-borrower in this way.
To refinance an auto loan, you must meet certain conditions. First of all, you must have equity in the vehicle and have a good payment history on the loan. Your car must also meet certain requirements; these vary, but the vehicle should generally travel less than 100,000 miles and be less than 10 years old. Your credit score should also be better than it was when you originally took out the loan, and you must have enough income to pay off the loan on your own.
The biggest problem with removing a co-borrower is that they are added to help meet income requirements so that you can qualify for the auto loan in the first place. If you take a co-borrower’s income out of the equation and the lender finds that you can no longer afford the car loan on your own, you will not qualify for refinancing.
However, when you refinance, sometimes you have the option of extending the loan term to reduce your monthly payment. Be aware that extending your loan and keeping the same interest rate means you will be paying more in interest costs. Aim to lower your interest rate, as this is the perfect way to refinance since it saves you money over the life of the loan, and at the same time it can lower your monthly payment.
2. Sell the car
If you don’t qualify for refinancing, or neither of you can afford the monthly payment, it may be time to sell the vehicle. It’s best to be proactive in selling it if other options aren’t available, as missed and late payments on the car loan can seriously hurt both of your credit scores.
If you have equity in the car, that could mean trading it in for something else and using it as a down payment on a cheaper vehicle. Make sure to bring the co-borrower with you to sign the title. If they do not sign the title when selling the car, the co-borrower would still have rights to it and the sale is not legitimate.
3. Settle in court
It might be considered the last resort, but you can try to resolve things in court. Couples who were co-borrowers on large assets like homes and car loans, and then divorce later, often have to divide their finances and organize payments on their shared responsibilities.
You may be able to come to an agreement where the co-borrower is ordered to pay a share of the vehicle, or something like that. But just be aware that if they don’t pay (even if they’re ordered by a court), any missed or late payment can still impact your credit score, as both of you are still tied to the car loan. .
It can get sticky when you’re a co-borrower and things start to fall through the cracks. Things happen, and sometimes don’t turn out the way you want them to. However, you shouldn’t let that stop you! Even borrowers with bad credit, no credit, or unique credit situations still have auto loan options.
If you’re ready to get into your next vehicle, but need a lender who can adapt to your situation, start with Auto Express Credit. Here, we connect borrowers with dealers in their area who have the credit options they need. Start by filling out our car loan application form, and we’ll get to work!