A cosigner doesn’t have any legal rights to the car they’ve cosigned for, so they can’t take a vehicle from its owner. Cosigners have the same obligations as the primary borrower if the loan goes into default, but the lender is going to contact the cosigner to make sure the loan gets paid before this point.
What Rights Does a Cosigner Have on a Car Loan?
When someone agrees to cosign a car loan, they agree to share responsibility with the primary borrower. This means if the primary borrower stops making payments on the vehicle, the cosigner is responsible for making payments so the loan doesn’t default and end in a repossession. If this happens, the cosigner’s credit score is going to be affected because they’re also responsible for the loan. Because the cosigner’s credit score is likely higher than the primary borrower’s, any negative marks end up affecting their score even more.
As such, the cosigner and primary borrower need to keep in touch regarding the auto loan. It’s important that they sit down and discuss any “what-ifs” and come up with a plan B if one or the other can’t pay. They also should reach out to the lender before it’s too late – most lenders want to help borrowers avoid repossession, and may be able to work with the situation.
Can a Cosigner Be Removed from a Car Loan?
Removing a cosigner isn’t easy – the primary borrower can’t just take their name off the loan because it’s a binding contract. What they can do is refinance, but that can only happen if their credit has improved since taking out the original auto loan,which typically takes at least two years of on-time payments. Refinancing gives the primary borrower the ability to remove or add a cosigner, as well as possibly qualify for a better interest rate.
If the primary borrower is considering refinancing, they need to be aware of these five things before sitting down with their lender:
- Income situation – Like the original loan, the primary borrower must qualify using their income and meet debt to income and payment to income ratio requirements.
- Credit score – The primary borrower needs to have good credit, or improved their credit.
- Monthly payments – Any missed payments can disqualify a borrower from refinancing, but this depends on the lender and the borrower’s overall payment history.
- Additional fees – Refinancing includes a fee to change the title and possibly additional costs such as a loan origination fee.
- Equity – The car must have equity.The loan balance must be less than or equal to the vehicle’s actual cash value. Unless the borrower has the money to cover the negative equity, a lender isn’t going to approve them for refinancing.
Looking for Auto Financing?
If you need an auto loan but aren't sure where to start the process, The Car Connection wants to help whether or not you have a cosigner. We match car buyers with credit challenges to dealerships in their area that specialize in helping buyers with less than perfect credit. The best part is that the service we provide is free, fast, and puts you under no obligation. Get the process started by completing our simple and secure auto loan request form today.