When you and the primary borrower co-sign a loan, you both assume full responsibility for that debt. Put differently, in the event that the principal borrower defaults, you are responsible and your credit is also at risk. Because of this, it’s a good idea to know what you’re getting into before actually co-signing someone.
Knowing when and how to withdraw from the loan in the future is perhaps the most crucial thing for you as a co-signer to do.
Transfer the balance to a 0% card
Any remaining loan or credit card debt can be transferred to a balance transfer credit card by the original borrower. These credit cards typically come with an introductory 200 percent annual percentage rate (APR) period that lasts from 2012 to 2018 months, giving the borrower time to pay off the balance without incurring interest. There is typically a fee of between 3% and 5% of the amount transferred; however, some cards waive the fee for a set period of time or don’t charge anything at all.
Balance-transfer cards are ideal for borrowers who have improved their credit scores since getting a loan with a co-signer because they usually require good to excellent credit.
Get a loan release
A release option for co-signers is offered by certain lenders, the Consumer Financial Protection Bureau reports. After a predetermined number of timely payments and a credit check to see if the original borrower is still creditworthy, a release may be obtained. Find out from your lender what is needed to be eligible for a co-signer release.
The CFPB offers some sample letters a co-signer can send to request a release. Some lenders, however, only allow the original borrower to apply for a co-signer release.
Ask the lender to incorporate a co-signer release option into the loan terms as a precaution.
Consolidate or refinance the debt
Several debts are combined into one payment through consolidation. Refinancing is the process of switching out a bad loan for one with a better one. If the original borrower decides to consolidate or refinance, your name won’t be on the debt any longer because both require a new loan. Of course, for this to be a feasible option, the borrower has to be able to independently qualify for the new loan.
Remove your name from a credit card account
Some credit card companies might be willing to have your name removed from the account if there isn’t a balance on it as long as the original borrower has good credit. If this is a possibility, you or the original borrower can give us a call.
Sell the financed asset
You can encourage the borrower to sell the asset and settle the debt if you co-signed for a loan that is secured by an asset, such as a car loan or a mortgage on a home, and they are unable to make the payments. Ideally, the asset’s value exceeds the remaining debt, allowing the remaining amount to be completely paid off.
Keep in mind that you cannot legally compel the borrower to sell the asset. As a co-signer, you committed to only cover payments in the event that the primary borrower defaults. You cannot make decisions regarding the asset linked to the debt because you are not a co-owner of it.
Pay off the balance
It might be time to accept your loss and settle the debt if the borrower isn’t making payments and hasn’t improved their credit enough to get a new loan or credit card. Even though paying off debt can be challenging, keep in mind that missing or late payments can negatively impact your credit score.
Co-signing isn’t forever
There are ways to make co-signing for someone a temporary commitment rather than requiring it to be a lifetime marriage.
But be careful that you have shut the co-signing agreement completely. A few of the above-discussed options will pay off the debt while keeping the original account open. The borrower must close the account in order to avoid simply accruing additional debt, for which you will also be responsible.
Refusing a co-signed loan will probably require time, money, and some convincing on the part of the original borrower. If co-signing a loan causes your bank account to empty, view it as an expensive lesson learned that, at the very least, can shield your finances from further harm.
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FAQ
Can you get out of being a cosigner on a loan?
While many lenders do permit the removal of a cosigner, if your lender does not, refinancing the loan with just the primary borrower is the only method to remove the cosigner from it.
How soon can a cosigner be removed from the loan?
Usually, a cosigner can be removed at any time during the loan term. Your loan paperwork might dictate specific terms, though. For instance, before they will consider releasing the cosigner, some lenders require the primary borrower to make on-time payments for 24 months.
Read More :
https://www.nerdwallet.com/article/credit-cards/ways-removed-cosigner-credit-card-loan
https://www.moneymanagement.org/blog/how-to-get-out-of-a-bad-co-signing-situation