When Should You Look Into Cosigner Release?
Cosigning a loan is a generous way to help someone close to you to get funds that they otherwise wouldn’t have access to. It can even help the borrower to obtain a loan at a lower rate.
However, there are numerous risks when offering to be a cosigner. You have a legal obligation to repay the loan if the primary signer fails to pay.
Cosigner release is one way in which a cosigner can remove their legal liability. Here, we will tell you more about what cosigner release involves, and when it may be a good action to take.
What Is a Cosigner Release?
Cosigners are legally responsible for the full duration of the loan repayment period. This can mean that the cosigner is at risk of the primary borrower defaulting for several years.
The obligations involved can result in the cosigner facing legal action, or having their credit ruined.
Cosigner release is a way out of these potential issues. It involves the lender agreeing that it is no longer necessary for the cosigner to promise to repay the debt. In this case, the cosigner’s name can be removed from the loan, and they are absolved of their legal responsibility.
The debt then becomes the sole responsibility of the primary borrower.
When Should I Consider Cosigner Release?
Cosigner release is most commonly an option for student loans.
Young people attending school don’t often have a high income; therefore, student loan lenders require cosigners for the applicant to qualify for funding. The cosigner for these loans will usually be a parent or other relative.
While the cosigner wants to help out the borrower when attaining the loan, they don’t want to be cosigned on the loan for the years of repayment.
Private companies will, fortunately, offer cosigner release once the primary borrower reaches specific requirements. This often means making a set number of on-time payments.
This is not necessarily an option for all private student loans. For some companies, it’s advertised as a key feature, but others don’t offer cosigner release at all.
Cosigner release is also rarely available for other types of loans. If you’re cosigned to a credit card or personal loan, then most likely, your name will be attached to the contract for the full duration.
It would be best if you made yourself aware of whether a lender provides an option for the cosigner to be removed from the loan after a set period. Cosigner release will reduce the risk because you’re only liable if the borrower defaults before the set time.
What Are the Alternatives to Cosigner Release?
If cosigner release is not available, there’s still a way for a cosigner to be absolved of their responsibility. If the borrower can refinance a loan under their own name, then the cosigner will be cleared from any legal obligation.
Refinancing means that the borrower has to take out a new loan.
If the borrower’s credit or income has improved, then they may be able to take out a loan without a cosigner. If the borrower’s financial situation hadn’t changed, then they would most likely still require a cosigner. In this case, there would be little point in trying to refinance the loan.
If the primary borrower now qualifies for credit on their own, they could take out a new loan without a cosigner to pay off the full amount of the loan. The debt would now show up as paid off on the credit report of the cosigner, and there would be no outstanding balance.
What to Look Into When Considering a Personal Loan?
If you want to refinance a previous loan, you will probably need to take out a personal loan. The Best personal loans are those that allow you to borrow the amount you need and pay it back at a rate that’s affordable to you.
Look for loans with low-interest rates and flexibility with payments if you’re worried about consistency when you start repaying. It’s stated in this Marcus by Goldman Sachs review that their loans are “more suited to users who have stronger credit and overall healthy finances.”
You will find that for a lot of firms, you can get much better rates for your loan if you have better credit.
Why Cosigner Release Reduces the Risk of Cosigning a Loan
Some private student loans now require as few as 24 on-time payments before cosigner release becomes available. This means that a cosigner could be clear of the loan in only two years, regardless of how long the borrower takes to pay the rest of the loan.
When cosigner release is available after such a short period, there is much less worry about the loan showing up on the cosigner’s credit report for a prolonged loan repayment timeline. If the borrower defaults after the cosigner have been released from the loan, it will have no effect on the cosigner.
It’s always sensible to ask about cosigner release options before cosigning for a loan.
It’s still a big responsibility to take on, but it makes a slightly easier decision if it’s only for the short-term.