If you’re reading this, you’re probably experiencing cosigners' regret. You've figured out that cosigning that credit card or loan for your loved one wasn’t a good idea and you want to remove your name from the debt. Removing your name from a cosigned loan won’t be easy, for some debts it may not even be possible.
Cosigning a loan or credit card basically tells the bank that you’re willing to make payments if the other person doesn’t. Cosigning also means the bank can pursue you for payment even if the other person files bankruptcy or passes away before the debt is paid.
As a general rule, the bank won’t let you off the hook for the debt unless the other person has demonstrated they can handle the loan on their own. Think about it: you would never have been asked to cosign if the other borrower had shown this ability from the beginning. Maybe things have changed since then. The bank will definitely want proof.
Removing Your Name From a Loan
Get a cosigner release. Some loans have a program that will release a cosigner’s obligation after a certain number of consecutive on-time payments have been made. Two years of on-time payments seems to be the norm. Read through your loan documents to see if there’s any type of program associated with your loan. Or, call the lender and ask if something like this applies to your loan.
Refinance or consolidate. Another option is to have the other borrower refinance the loan into their name. To qualify for a refinance, the borrower needs to have a good credit history and enough income to make the new loan’s monthly payments. Consolidation is common with student loans. If the borrower qualifies, they can use the consolidation loan to pay off the loan you cosigned. The original cosigned loan would still be listed on your credit report, but it should indicate the account is closed and paid in full. Payments - and non-payments - on the consolidation loan won't affect you if your name is not listed on the loan.
Sell the asset and pay off the loan. If you cosigned on a home or car loan and the other person isn’t making the payments as necessary, you may be able to sell the asset (the car or the house) and use the money to pay off the loan. Your name must be on the title to sell the property to someone else.
Remove Your Name from a Credit Card
The credit card issuer may willingly remove your name from the credit card if there’s no balance on the card. However, if there is a balance, you’ll have to pay it off before you can make these types of changes to the account.
Transfer the balance. The other borrower may be able to transfer the balance to a credit card that’s in their name only. Once the balance is transferred, close the credit card so future charges can’t be made to the account. To keep future charges from being made, you can ask the credit card issuer to add a comment in their system indicating that the credit card account should not be reopened.
Pay off the balance yourself. It won’t be fun paying a credit card balance you didn’t make and didn’t benefit from. However, paying the balance is better than ruining your credit rating and having debt collectors pursue you. You can even close the account or have the credit card issuer freeze the credit limit so no future charges can be made to the card, especially while you’re trying to get rid of the balance.
Remove Your Name From a Forged Loan
When a loved one has forged your signature on a loan, it puts you in a tough spot. You don’t want to be held liable for a decision you never made, but you also want to avoid having your loved one be arrested for forgery or fraud – something that could happen if you blow the whistle to get yourself off the hook.
The lender probably won’t remove your name from a forged loan unless you report the forgery to the police or give them a signed affidavit where the forger admits to the offense. Both put your loved one at risk of criminal action. If you don’t let the lender know of the forgery soon after you find out, your silence could be interpreted as acknowledgment. In other words, you could be liable for the loan.
You could try to take one of the actions mentioned before: have the person refinance or consolidate the loan or transfer the balance if it’s a credit card. You can also make an arrangement with that person to have them pay off the loan within a certain amount of time, sooner rather than later. You might have the forger sign an affidavit admitting to the forgery just in case they don’t pay off the loan and later try to claim that you did cosign.
If you can’t get the lender to remove your name from a cosigned loan or credit card balance, your best option is to at least keep up the minimum payments until the balance is paid off or until the other borrower can get the account in their own name. Cosigning may not become an issue unless the other person isn’t keeping up with the payments, so get into the habit of checking the payment status, especially in the days leading up to the due date, on the due date, and the date after. Don’t wait too long because late payments go on your credit report after 30 days.