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Can a Cosigner Be Removed from a Car Loan?

Refinancing May Help You Remove a Cosigner and Save You Time, Money, and Sanity.

Relationships are complicated and unfortunately there may come a time when it is smart to protect your finances. Marital separation or divorce – of people and their finances – is one of those times.

The aftermath of separating finances and property can be just as hard as saying goodbye. But if your auto loan outlives the life span of your relationship, there is an easy solution that doesn’t require a lawyer – or therapist.

Refinancing your auto loan is the simplest way to remove that ‘we-shall-not-name’ person from your car loan, as well as set you up with a lower interest rate.

can a cosigner be removed from a car loan

The End of One Relationship Can Mark the Beginning of a New Relationship – With Your Car

Let’s say Michelle and Robert bought a car together as soon as they got engaged but didn’t quite make it down the aisle. It turns out that Michelle drives the car much more frequently and is comfortable making payments by herself. It’s a much cleaner separation from Robert if she finds a new auto loan altogether.

Loretta Hutchinson, President of Financial Divorce Plan and a certified divorce financial analyst recommends, “Although I rarely recommend unmarried couples signing a loan together, if there is no marriage contract there should be a separate written personal contract outlining each parties responsibilities…this may avoid some he said, she saids.”

Especially, if you don’t have that written contract, refinancing is the answer.

What are the risks of keeping a divorced spouse on your lease?

SCENERIO ONE: Let’s say Michelle and Robert did make it down the aisle, and now their financial separation is a bit messier. Even though Michelle takes the car, Robert agrees to make the rest of the car payments after the divorce. Three months after the divorce, Robert gets disgruntled and decides to stop paying without notifying Michelle. Now Michelle’s credit is affected, and she has a harder time financially in her new life.

As a Certified Financial Planner, Hutchinson has seen this real life Michelle and Robert situation, when a client’s finances were affected because the spouse who had agreed to pay the remainder of the loan in her name became unhappy with the rest of the divorce process and stopped making payments.

Hutchinson advises, “If you are responsible for payment of a loan or lease and your name is on the contract, make sure you can afford the payment on your own as well. Should anything happen, you can keep up the payments and your credit score will not be affected by someone else’s unwillingness to keep up their part of the financial burden.”

SCENERIO TWO: Michelle and Robert made it down the aisle, financial separation is ominous, so they decide she will take the car AND make the payments. All is fine for a few years, but then she decides to sell the car, Robert has remarried and won’t answer her calls. They still owe on the car loan. To sell the car, she has to have his signature. How can she sell the car now?

Michelle should have refinanced the vehicle or settled this outstanding loan in the settlement, but now she’s left with one arm tied behind her back.

Refinancing is the Smart Solution

Luckily, refinancing an auto loan can be easy. In any situation, Michelle takes the following steps:

She gets in touch with IFS and fills out a car loan application.
IFS finds the best deal for Michelle, even lowering her payments and interest rate.
Michelle signs a few documents and the new loan is complete…
Without Robert’s name on the loan.

Michelle drives off into the sunset with her car (and a carton of ice cream).

Are there any other options besides auto refinancing?

When a loan is made, it’s guaranteed to both people on the contract. Other options to remove a name from your auto loan can be as complicated as the split. There is always the option to pay off the rest of the loan if finances are stable. But this can lead into another arena of debate – who will pay it off? Will one ex-spouse owe the other money?

Another not so pretty option is bankruptcy. This is an extreme route, and in some instances may not even guarantee a name-removal from the loan.

According to Jeffrey A. Landers, a certified divorce financial advisor and best-selling author of DIVORCE: Think Financially, Not Emotionally®, “Adding the amount of lease/auto payments to alimony is a smart way to ensure those payments will be made because alimony payments are almost always nondischargeable in bankruptcy.”

People’s emotions are hard to count on sometimes. But managing your credit’s future is easier than you think. If you are ready to refinance your car loan, apply today.

Ready to Refinance?

Innovative Funding Services (IFS) specializes in auto refinance. When you apply with IFS, your dedicated Finance Advisor will search for a refinance auto loan that meets your needs from our network of 25+ national lenders. We offer up to 100% financing for those with credit scores of 525 to 850.

Learn more about car loan refinance, see how much you may be able to save with our auto refinance calculator, or, if you are ready, apply to refinance through IFS now.

Apply Now

Alexandra Oliver

Alexandra works for IFS, loves her Toyota Yaris but dreams of driving a Tesla.