Buying a car is both a major milestone and a necessity for a lot of people. However, not everyone who needs a car is qualified for a car loan. If you were one of these people, one solution you might have found to get your car financing approved was by getting a co-buyer.
But what if you’re planning to remove the co-buyer from your loan? Are there ways to do this easily, without getting into messy arguments and complications?
This article will discuss the different options that you have on how to remove a co-buyer from a car loan. You can check out these options to see which one is the best choice for your personal situation.
Who is a Co-Buyer?
In the United States, the easiest way to get a car is to get a car loan. According to a consumer debt study by Experian, auto loans in America hit a record high of $1.3 trillion. But not all car loans are taken by solo buyers. Some buyers who get auto loans can do so by getting a co-buyer.
Before we go to the methods that you can use to remove a co-buyer from a car loan, it’s important to clarify the meaning of a co-buyer. A co-buyer is someone who jointly bought the car with you. This person is equally responsible to pay the car loan and at the same time, also has equal ownership of the car. In short, the co-buyer has rights to the vehicle.
Why would you need a co-buyer and when is a co-buyer beneficial? Usually, a co-buyer is needed when you do not have enough income to get approved for a car loan. Having a co-buyer in a car loan improves your debt-to-income ratio. This makes you a lower risk because there is more money available to cover the monthly car loan payments.
A lot of couples and family members also become car co-buyers if they want to own a vehicle together. If two people are equally sharing the expense of buying a car, it is just natural for the second person to ask to be a co-buyer to have ownership rights and legal claim to the vehicle.
Co-Buyer VS. Co-Signer
How is a co-buyer different from a co-signer? If you have a bad credit score and you are having a hard time getting approved for a car loan, you can ask a family member or a friend with good standing to co-sign the car loan with you. This gives car lenders an additional guarantee in case you default on the loan because they can go after the co-signer to assume the payments.
While a co-buyer has ownership rights with regards to the car, a co-signer does not enjoy such rights. A co-signer will only be responsible for the car loan payments in case you default on the car loan but this person does not own the car with you. The name of a co-signer will not appear on the car title and if you want to sell the car, you do not need the approval of the co-signer. In short, a co-signer does not have any claim to the car.
For example, if you buy a car with your spouse being a co-buyer, both of you have equal rights to the car, both of you are equally responsible for the car payments, and both your names will appear on the car title.
On the other hand, if you have a bad credit score and you asked your father who has perfect credit history to co-sign the loan with you, this can help you get car financing approval. However, your father’s name will not appear on the car title. If you default on your car payments, the lender can go after your father as he is also responsible for the car payments.
With these conditions above, having a co-signer is more beneficial to the primary buyer compared to having a co-buyer. However, from the point of view of the second person, being a co-buyer is more advantageous because it provides ownership rights.
Can You Remove a Co-Buyer or a Co-Signer From a Car Loan?
Yes, you can remove a co-buyer or a co-signer from a car loan through different methods. Removing a co-buyer from a car loan is very common especially with spouses who co-own a vehicle.
Depending on the situation, both parties have to agree on who will resume the car loan and if any compensation has to be paid to the person being removed from the car loan. If there is a dispute, this can be decided by the courts (divorce court if related to spouses).
The process of removing a co-signer from a car loan is similar to how you would remove a co-buyer. In both cases, you have to prove that you are capable of assuming the car loan by yourself before you can do this. There are different methods in which you can remove a co-buyer from a car loan.
How to Remove Co-Buyer From a Car Loan?
There are different reasons why you would want to remove a co-buyer from a car loan. Maybe your co-buyer is your partner and you have separated. If your co-buyer just helped you out to get approved, maybe that person wants to be removed from the car loan. Or perhaps your co-buyer is deceased. Whatever your reason is, you can choose one of the following methods to remove a co-buyer from a car loan.
1. Request the Lender to Modify the Loan
If you want to keep the current car financing plan that you have and you want to just continue paying the same, you can check with your lender if they will agree to modify the loan without your co-buyer’s name. This is usually allowed only in special circumstances such as if your co-buyer passed away. In this instance, you would need to show a death certificate for the lender to consider your request.
A loan modification will benefit people who are not that confident that they will get a better deal if they refinance the car loan. If you feel that refinancing the loan will put you at a disadvantage, you could try this method. However, you have to take note that the lender will still check your credit status if you are qualified to shoulder the car loan by yourself.
2. Refinance the Loan
Refinancing is one of the easiest ways to remove a co-buyer from a car loan as long as the co-buyer agrees. Refinancing means taking out a new loan to pay for the car as a solo buyer. You would have to prove that you are qualified and you have enough income to pay for the car loan to be approved.
If you have a higher credit score and a better debt-to-income ratio, refinancing could actually be beneficial. It could give you better interest rates which could lower the monthly payments on your car. If your credit is poor, there are still lenders who will be willing to finance your car loan but this will typically have higher interest rates.
If your co-buyer does not consent that you close the loan and refinance on your own, you would have to settle this in court and the judge will decide who has the legal claim to assume the car loan.
3. Pay Off the Loan
If your goal is to only release your co-buyer from liability, you can consider taking a personal loan on your own and paying off the remaining car loan in full, especially if the remaining car loan amount is not that substantial. Paying the loan in full releases your co-buyer from the financial responsibility of paying for the car loan.
This could be a good idea if you can get an unsecured personal loan with better interest rates. You have to be careful though because if you have poor credit and your only choice is to go for high-interest online loans, doing this method could balloon your debts instead of saving you money.
4. Sell the Car
Selling the car is another way to release your co-buyer from the car loan. This is also ideal if you can’t agree on who will take ownership of the car and assume the monthly car payments after refinancing. Selling the car will give you a clean break and if you have a good credit rating, this is a good opportunity to buy another car with better interest rates.
What Happens After Removing The Co-Buyer From The Car Loan?
What Happens After Removing the Co-Buyer From the Car Loan?
If you decide to modify the loan, refinance, or pay off the loan to remove the name of your co-buyer from the car loan, the next step is to remove the co-buyer from the car title. Remember that aside from being on the car loan, your co-buyer’s name also appears on the car title. It is important to remove the name of your co-buyer if you want to have sole ownership rights to the vehicle.
Check your car title if your names are joined by the conjunction “and” or “or”. If your names are joined by “and”, it means both of you should consent to complete the transaction. If your names are joined by “or”, it is possible for you to complete the process alone. Again, it will depend on your state rules.
If you are wondering how to remove a co-buyer from the car title, you have to check with your local DMV in the state you live in to see what process you need to follow. Depending on the state that you live in, the rules or processes will be different.
Removing a Co-Buyer from a Car Loan By Yourself
If you are planning to remove a co-buyer from your car loan, you have to make sure that your individual financial situation is adequate enough to shoulder the cost of the monthly payments on your own. You also have to agree with your co-buyer whether you have to provide any compensation if you plan to keep the car. In most situations, the best way to settle any dispute between your co-buyer is to sell the car and split the profits. If you are in a better financial situation, it could be more beneficial for you to get a new car loan with a new car.