Can You Get Out of a Loan You Co-Signed?

Many financial experts advise against co-signing a loan. At the very least, it’s a decision to approach with extreme caution, because if the borrower makes late payments or can’t repay the debt, you and your credit are on the hook.

Getting out of a co-signed loan isn’t easy, and it is not always possible, which is why agreeing to one requires both parties to completely understand their responsibilities for the loan.

Unfortunately, it doesn’t always happen this way.

Know What You’re Getting Into

Consider this person’s story: A Reddit user posted about an auto loan he or she co-signed with the intention of getting off it later. The woman this person co-signed for has no income.

“The idea was that she would get a job and then I could get off the loan,” the user wrote. “Really, I don’t know how that works. How do I get off the loan?”

“Good luck with that,” said Gerri Detweiler, Credit.com’s director of consumer education. “Unfortunately, lenders do not like to let a co-signer off a loan.”

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It gets worse.

“I assume this extra debt will affect my ability to purchase a home as it severely affects my monthly expenses,” the Redditor writes. “If she gets a job, how soon could she expect to refinance or whatever it takes to get me off the loan? She is talking about going back to school in summer and I don’t want this loan on my credit report for the next 5 years.”

New-car loans typically span a little more than five years, but the loan will stay on this person’s credit history much longer than that. If the user is making the payments on the auto loan on time, that payment history will help his or her credit, but the debt obligation will negatively impact the debt-to-income ratio, which mortgage lenders consider when evaluating applications.

Moral of the story: You need to understand what you’re getting into when making any financial decisions.

Getting back to the question of getting out of the co-signed loan, the chances are slim of the borrower having good enough credit to refinance on their own. The whole “no income” thing is pretty problematic, too.

Options for Co-Signers

In this case, the co-signer’s best option is to make payments until the borrower can take them over, then try and collect the past payments from the borrower. The worst thing this person can do is allow the loan to go unpaid, because that poor payment history will damage his or her credit.

At the very least, the strong payment history will be a good thing.

The Redditor can certainly hope the woman will be able to refinance the loan on her own, but if that doesn’t work out, making sure payments are made is the best option.

“You can step in and make the payments yourself and then try to collect from the borrower if you want to protect your credit,” Detweiler said. “You might be able to go and sue the co-signer for the amount of debt owed, but how are you going to collect it?”

Other than that, there is no opting out of a co-signed loan.

“You can’t go to court and say, ‘I don’t want to be responsible for this debt,'” Detweiler said. “Your best option if you want to protect your credit is pay it yourself.”

If you’re a co-signer on a loan, it’s important to check your credit regularly to make sure the co-signed loan is being paid on time and as agreed by the other person (if that’s the arrangement). You can get your credit reports for free every year from each of the major credit reporting agencies — by taking advantage of that, you can make sure there are no errors or negative items hurting your credit (and if there are, it’s a good idea to address them as soon as possible). Meanwhile, by monitoring you credit scores regularly, you can look for signs that there’s a problem with your credit. Credit.com’s Credit Report Card is one tool that allows you to monitor your credit by offering two credit scores and an overview of your credit report, updated every 14 days for free.