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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. This means you'll close out your old loan and take out a new loan for the same amount as your current balance, with you as the sole person on the loan. Check out other banks if your bank doesn't allow you to refinance. Apply for a new loan under your own name. The credit score you obtained will largely dictate whether you'll be accepted, giving you an idea of what you can expect from the approval process.
You might not receive the same interest rate you had with a co-signer; there's also a chance you might not be approved at all. If you feel your bank isn't giving you the rate you deserve, try applying at other banks to get the best rate. Some student loans don't require refinancing to remove a co-signer. A co-signer is a person who takes full responsibility for a loan along with the borrower. A co-signer generally has a favorable credit score and history, which helps the main borrower obtain a loan to purchase a house, buy a car, or take out a personal loan or student loan.
Unfortunately, being a co-signer might not be as beneficial for you. A co-signer is a person who has agreed to guarantee the debt of another individual but does not receive any of the loan proceeds.
In other words, a co-signer is responsible for the debt if the borrower does not make payments or defaults on the loan entirely. The co-signer lends his or her good name and credit history to help another borrower obtain financing. Having a co-signer can help a loan applicant obtain not only the loan, but also more favorable terms and more money than they might otherwise be eligible for.
The most important thing to note is your financial responsibility. Depending on how late they are, you also may owe penalties, late fees, additional interest and more. Credit history, credit score, income, debts, employment and other financial details are all likely to be considered as part of the loan application when you agree to become a co-signer for someone.
On the other hand, being a co-signer can help improve your credit score if the borrower consistently makes payments on time. If the primary signer on the loan stops making payments or falls behind, you can request a co-signer release. This is a form that the primary borrower will need to sign off on releasing you from the obligations of the loan.
The lender must also approve the removal of the co-signer which it will only do if the primary borrower can demonstrate that they have the credit and history to handle the payments. Your good credit could help a friend or loved one achieve their financial goals, but is it a good thing for you?
Here are a few things to consider before signing on the dotted line:. Any added risk for the primary borrower is added risk for the co-signer, too. For example, a HELOC might seem like an easy way for you to help your child pay off a massive medical debt, but it also puts their house at risk. Generally, lenders want to see co-signers with high credit scores, blemish-free credit reports and long histories of consistent, on-time payments. Does this apply to your financial scenario?
The five-step strategy outlined below focuses on helping the person improve their credit. This will tell you what their starting point is. Plus, there's an explanation of what factors are causing a lower score.
Once the person you cosigned for improves their score, they may be able to hold the loan on their own. Are there a lot of late pays on loans or credit cards?
Does the person have recent run-ins with collections? Are there accounts that should be reported in good standing that show a late payment or went into collections for non-payment? If yes, these need to be rectified in order to improve the score. The strategy should improve the borrower's ability to obtain credit. It could be as simple as paying all bills on time for six months. This is because a large chunk of a person's credit score is how they manage revolving debt such as credit cards.
If the only problem is misreported information, you can resolve these credit report disputes in about two months. Other actions should be given six months in order to make a noticeable impact. After a few months, check the borrower's credit score again to see if your efforts have made an improvement. As we mentioned, you might begin to see results in as little as a few months, although it might take up to six months to begin to see credit score improvements.
If you don't see much improvement, go back to the credit report to see if you've missed any areas that you can rectify to improve the score.
Another option for getting out of a cosigned loan is to ask the person using the money to make extra payments to pay off the loan faster. You may want to chip in on the balance so you can end the credit burden on your account.
Chipping in makes senses in two circumstances:. With certain types of loans, the best way to get out is to close the account. This is best when you are a joint account holder on a credit card or line of credit. If there is a remaining balance, it will have to be paid off or transferred first.
Apartment leases can also be closed and reopened at the end of the lease by the person occupying the apartment.
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