How to Remove Your Name From a Co-Signed Loan

When you co-sign a loan, you tell the lending institution that you are willing to make payments even if the other person doesn't. Shutterstock

You wanted to help your loved one, or maybe a friend needed some help buying their car. But now you realize that wasn’t a good idea, and your good credit is taking a hit because they’re not making the payments on time, or at all.

There are many reasons to co-sign a loan, and most of the time nothing goes wrong. But for those times that do go wrong, there are some ways to remove your name. But be warned: this is not an easy thing to accomplish, is often is not possible, or will cost you.

Co-Signing a Loan

When you co-sign a loan, you tell the lending institution that you are willing to make payments even if the other person doesn’t.

Co-signing a loan also means that if the other person dies, you’re liable; and if they declare bankruptcy, you’re liable for repayment.

Generally, lenders will not remove your name unless the other person can demonstrate that they can handle the loan independently.

But there are some steps you can take to eliminate the co-signed loan.

Co-Signer Release

There are loans with programs that release the co-signer’s obligation. A certain number of consecutive on-time payments must be made.

Sallie May lets student loan borrowers apply for release after 12 months of consecutive timely payments. Credit and other requirements must also be met. Before or after signing, read through the loan documents to see what your options are. You could also call the lender and see what your options are.

Refinance the Loan

Ask the other person to refinance the loan in their name. This person must have a good credit history, so it won’t work if they haven’t been making their payments on time. If they don’t have a good credit score, help them improve it.

Have them pull their credit report from one of the three credit bureaus: TransUnion, Equifax, or Experian. Then, evaluate what problems they are having.

Focus on the issues currently hurting the credit score and develop a plan with a timeframe. Continuously check the FICO score. It’s beneficial for both of you to improve the other person’s credit score.

Consolidate the Loan

Consolidating loans is also an option. It’s common with student loans. The qualified borrower can use the consolidated loan to pay off their student loans. This will take you off the loans.

Although the original co-signed loan will still be on your credit report, it will indicate that the loan is closed. The payments on the consolidated loan won’t affect you since your name won’t be on the loan.

Removing Name From Credit Card

If there’s no balance on the card, a credit card company may remove your name from the credit card. But if there’s a balance, you’ll have to pay it off.

The other person could transfer the balance to a credit card in their name and then close the joint credit card. To prevent future charges from being made, have the credit card company note in their system that the credit card account should not be reopened.

You could also pay off the balance and close the credit card, or have the insurer freeze the credit limit so no future charges can be made to the card.

Removing Name From a Car Loan

When a financial institution gives a loan to co-borrowers, they usually insist both names be on the title. Usually, the wording has “or” between the two names.

This makes it easier to take yourself off the loan. You can sell the asset and then the loan can be paid.

If your name isn’t on the asset, you can’t legally sell it. But you can encourage the other borrower to sell it. And then you can pay off the loan.

What If Your Name Was Forged on a Loan?

If a loved one has forged your name, you can be put in a terrible position. It’s easy to do this with credit card applications and student loans. Car and other loans may be more difficult.

You'll need to decide how you want to deal with your relative. You may want to avoid having your loved one arrested for forgery.

Lenders don’t remove your name from a document unless you report the forgery to the police. But you could also give the lender a signed affidavit with the forger’s admission of guilt.

If you don’t report the forgery to the lender, this is interpreted as an acknowledgment that you accept responsibility for the debt.

Unless you report your loved one, you are liable for the loan.

Protect Your Credit Score

If you’re unable to have your name removed from a co-signed loan, protect your credit. If the other borrower isn’t making the payments, you’ll need to do so.

Do this until the other person can find refinancing or consolidation. If they’re having problems, help them clean up their credit through monitoring and budgeting.

But this might not be an issue if the other party keeps up with their payments. If that’s the case, encourage them to refinance.

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