Co-signing on a loan is a brave and generous move that can help your close friend or family member build their credit. But if things didn’t go as planned, you can find yourself wishing you hadn’t been so gracious. When that happens, you might start to wonder how to remove yourself as a co-signer. Depending on the type of loan, it’s possible — though not always.
When you become a co-signer, you promise to pay the lender if your loved one stops making payments. The bank can come after you for the rest of the money, even if your friend or relative declares bankruptcy or dies before they pay the loan. Essentially, when you co-sign, you become equally responsible for the debt.
Generally, banks won’t remove you as a co-signer until the original borrower proves they can pay it back themselves. After all, there’s a reason why they asked you to co-sign. If your loved one’s situation has improved, the bank will want evidence.
The Balance explains how to remove yourself as a co-signer from a loan, credit card, and forged loan.
Removing Yourself As a Co-signer On A Loan
Here’s what to do if you want to remove yourself as a co-signer on a loan:
Get A Co-signer Release
Depending on the loan, some lenders will remove your responsibility after the original borrower pays their bill on time for a certain number of months in a row. For example, with Sallie Mae, student loan borrowers can apply for a co-signer release if they pay their bill on time 12 months in a row and fulfill other requirements.
Make sure to review the terms and conditions to learn if your loan offers this kind of program. Alternatively, you can contact the lender and ask them about your options directly.
Refinance Or Consolidate
If you can’t get a co-signer release, one alternative is getting your loved one to refinance the loan, so they have it in their name. But to be eligible, they must have built positive credit history and demonstrate that they can afford the payments alone.
Student loan borrowers often use consolidation. An eligible borrower can use this type of loan to repay the original that you co-signed. Although the initial loan would remain on your credit profile, the account will be marked as paid off and closed.
Sell The Asset And Repay The Loan
Say you co-signed on a home or auto loan that your friend or family member cannot pay. In this situation, you could sell the asset and use the funds to repay the outstanding principal. However, you only have this ability if your name is on the title.
Removing Yourself As a Co-signer On A Credit Card
This situation is a little easier to disentangle yourself from, especially if there is no outstanding balance. But, if there is one, you or the cardholder will need to pay it in full before you can do anything else. After that, you have two options to remove yourself as a co-signer:
Use A Balance Transfer
The initial cardholder could transfer the balance to a card in their name. After they do so, you can close the account to prevent any more purchases. You can also query the credit card company to ignore future requests to reopen the account.
Pay The Balance Yourself
This situation is less than ideal, but it’s preferable to damaging your credit score or debt collectors coming after you. Once you pay the balance off, you can cancel the card or ask the credit card provider to implement a freeze so it can no longer be used, particularly while you’re trying to pay down the debt.
Removing Yourself As A Co-Signer On A Forged Loan
If you discover that your friend or relative forged your signature to receive a loan, you can find yourself in a difficult situation. Of course, you don’t want to be responsible for something you had nothing to do with, but you don’t want to see your loved one arrested for fraud or forgery (which is a very real possibility if you have to file a report to remove your liability).
Experian suggests reporting forged loans to the Federal Trade Commission, as it is a form of identity theft. Banks won’t take your name off a forged loan unless you file a report to law enforcement or provide an affidavit with the borrower’s confession. Both options are undesirable because your loved one will face legal action. But if you don’t report the forgery to the lender upon discovery, the lender could perceive this as acknowledgment. In other words, you’ll be on the hook for the loan unless you report the crime.
If you can’t take your name off of a loan or credit card, the best thing to do is make the minimum monthly payments to eliminate the balance or until your loved one gets their name on the account.
Co-signing might not be a problem unless the borrower falls behind on payments, so make a routine of reviewing their account, so you don’t get caught off-guard.
- Irby, LaToya. “If You Regret Cosigning a Loan, Here Is How to Get Out of It.” The Balance, 27 May 2020, www.thebalance.com/how-to-remove-your-name-from-a-cosigned-loan-960968.