How to remove a co-signer/co-borrower from a personal loan
It’s possible to refinance as one borrower
If you’re the co-borrower or co-signer on someone else's loan, you may feel like you’ve entered a maze you can’t find your way out of — especially if the primary borrower has disappeared or stopped making payments.
If you need a way out of the co-signer maze, you have a couple of options, but most will require you to work with the primary borrower to escape the contract.
Key insights
- Co-signers act as a financial backup for loans, whereas co-borrowers share full and equal responsibility.
- Some loans have co-signer release clauses that hinge on meeting specific eligibility criteria.
- If the primary borrower has good credit, they can transfer the loan to a 0% APR card, consolidate it or refinance it to close the loan with the co-signer.
- If you’ve co-signed a credit card or other revolving credit, make sure the borrower closes the account when it hits $0 so they can’t continue borrowing in your joint names.
Removing a co-signer vs. co-borrower
Being a co-signer is not the same as being a co-borrower.
- A co-signer is a financial backup for the lender if the primary borrower stops making payments on the loan. While the co-signer is not responsible for covering a missed payment right away, they are responsible for the loan balance if the borrower continues to miss payments.
- A co-borrower shares equal responsibility for each monthly payment of the loan. They’re usually a partial owner of the asset as well, such as when a couple buys a house together.
If you’re a co-borrower, you may have an easier time removing yourself from a loan, given that you have some control over assets tied to the loan, like a house or a car. You’re also a partial owner of the loan, so you don’t always need the other co-borrower’s permission to make changes on the loan agreement.
A co-signer has less power to remove themselves from a loan without the primary borrower’s permission.
» MORE: Co-signing a loan: pros and cons
Check for a loan release
Some lenders include a co-signer release option in their contracts that allows the co-signer to leave the loan before it's paid off. These releases normally have stipulations, like the primary borrower completing a certain amount of on-time payments before the release can be exercised.
If the primary borrower’s credit hasn’t gone up, they may not be able to release you from the loan.
For example, Navy Federal Credit Union says that co-signers can be released from private student loans after “24 months of consecutive on-time, full payments,” among other requirements.
Some contracts won’t allow the co-signer to apply for the co-signer release. If that’s the case with your loan, you’ll need to work with the primary borrower to get yourself removed.
Most releases pull a new credit check on the primary borrower to determine their creditworthiness. If the primary borrower’s credit hasn’t gone up, they may not be able to release you from their loan, even if they want to.
Move the funds to a 0% credit card
The primary borrower could also consider moving the funds to a 0% APR credit card. These cards normally have a 12- to 18-month, 0% interest period. This gives the borrower time to pay down the principal balance before interest starts adding up.
Usually, there is a fee of 3% to 5% of the total amount added when transferring debt. There are cards that waive or don’t charge this fee, which are worth seeking out to save on the total amount paid.
Balance transfers require excellent credit scores, so this won’t be an option if the borrower has poor credit. But if they’ve boosted their score since taking on the debt, this could be an option.
» MORE: How to check your credit score
Consolidate or refinance the debt
Consolidating debt moves all the borrower’s debt to one loan, often via a personal loan. This means the borrower only has to make payments on one loan, rather than keep track of multiple payments on multiple loans. As a co-signer, your name won’t end up on a new loan for the consolidated debt.
If the borrower is able to refinance, they’ll be replacing the original loan with one that has better terms. Refinancing the loan is another way to get your name removed from the loan.
Borrowers have to qualify for consolidating or refinancing their loan, so it won’t likely be an option if the primary borrower has poor credit.
» MORE: How to get a debt consolidation loan with bad credit
Remove your name when the account hits $0
Loans can be of two types: installment credit or revolving credit.
- With installment credit, a lender gives you a set amount of money, and you pay it back in fixed monthly installments over a specific period. A car loan is a classic example of installment credit.
- Revolving credit allows you to borrow money, repay it and then borrow it again. Credit cards are an excellent example of revolving credit.
If the loan you’ve co-signed is for revolving credit, when the account hits a $0 balance, you can reach out to the credit card issuer and close the account. Note that often, only the primary borrower can call and have a co-signer removed.
Look for a way out through your state
According to Michelle Delker, founder of The William Stanley CFO Group, “State laws have a role to play with regard to the lenders’ willingness to release co-signers. For instance, some states mandate that lenders must release co-signers after a certain percentage of the loan principal has been paid back by the primary borrower.”
If you’re struggling to get taken off a loan due to a lender, there may be state laws in place that protect you as a co-signer and can help you remove your name from the loan. Delker recommends consulting a financial attorney or credit counselor familiar with your local regulations.
Sell the asset
For loans that include collateral, like a house or car, borrowers can sell their loan’s asset to pay back the loan and close the account. This works better with homes than it does with cars, as homes often appreciate and cars depreciate. If the asset is worth more than the remaining debt, you can pay off the loan.
Some states mandate that lenders must release co-signers after a certain percentage of the loan principal has been paid back by the primary borrower.”
Yet, it may be hard to get the borrower to agree to sell the asset. You legally can’t force someone to sell an asset as a co-signer. You aren’t a joint owner and can’t make decisions. You’ve only agreed to support with payments.
As a co-borrower, if your name is on the title or deed, you have more power in selling the asset to pay off the loan.
» MORE: Secured vs. unsecured loans
Pay off the balance
Sometimes, when you co-sign on a loan, you just have to cut your losses and pay it. If the primary borrower isn’t making payments or hasn't built up their credit to move the outstanding balance to a new account, paying the balance in full can at least end monthly frustration. After all, late or missed payments can dent your credit score.
While it may be an expensive lesson, you don’t want the primary borrower dragging you down with irresponsible financial decisions.
FAQ
What is the difference between a co-borrower and a co-signer?
The difference between a co-borrower and a co-signer comes down to the payment responsibilities. A co-borrower is responsible for every single monthly payment, just like their fellow co-borrower. A co-signer is only agreeing to pay for the loan if the primary borrower is unable to. Paying for the loan becomes the borrower’s problem after multiple months of missed payments.
What rights does a co-signer have?
Co-signers have the right to investigate what opportunities they have to remove their name from a loan. You can potentially remove your name from a loan by encouraging the primary borrower to sell the loan’s collateral, consolidate or refinance their debt or check for a co-signer release.
What is a co-signer release?
A co-signer release is part of a loan contract that states that after a certain number of payments, the co-signer can be released from the loan. These are common with student and auto loans and normally have very specific and rigid requirements.
Bottom line
As the saying goes, “No good deed goes unpunished.” Whether you were helping someone with a short credit history, low income or bad credit, it can be frustrating to figure out how to get your name off a loan you don’t want to be on the hook for repaying.
If you’ve cut ties, know that there’s almost no way to be removed legally from a loan you’ve co-signed without the primary borrower. It may be time to pick up the phone and give your friend or family member a call, and present them with the options outlined above.
Article sources
- Federal Trade Commission, “ Cosigning a Loan FAQs .” Accessed Aug. 22, 2023.
- Pentagon Federal Credit Union, “ Differences Between a Co-Borrower vs. Cosigner .” Accessed Aug. 22, 2023.
- Bank of North Dakota, “ The Answer Sheet: Cosigners .” Accessed Aug. 22, 2023.
