Can a co-signer have their name removed from a loan?
UPDATED: June 19, 2018
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident law decisions. Finding trusted and reliable legal advice should be easy. This doesn't influence our content. Our opinions are our own.
Unless there was fraud involved, there is generally only one way to get oneself removed as the cosigner of a loan; the loan must be paid off. Obviously, if the loan is simply paid in full by the signer, the cosigner’s obligation on the loan goes away—once a loan is paid off, no one owes any more money on it. However, assuming the signer doesn’t simply pay the loan, a cosigner can be taken off if the loan is refinanced or if a new loan is taken out to pay off the old loan. In either case, occurs is that a loan on which someone is a cosigner is replaced by a loan on which he or she is not. That involves the signer wanting to refinance the loan and also being able to do so.
However, it may not be likely that the signer would want to do this as it would involve some additional costs (such as origination fees), as well involving extra effort. In addition, it’s often the case that the signer can not get financing on his or her own—after all there was a reason the bank or other lenders required a cosigner in the first place. Generally, if the signer needed a cosigner to get credit the first time around, there’s no reason to think that he or she will be able to qualify on his or her own now. Thus, while the cosigner could be taken off a loan if the loan is refinanced or replaced by a new loan, this is often not a likely outcome.
The bank or other lender could, by the way, agree to let a cosigner out of a loan—though doing so would take the agreement of all parties to the loan, including the signer. There’s usually no reason why a bank would do this—it increases the risk of default by removing a party (the cosigner) that they would otherwise be able to sue or take action against. In short, there is nothing in it for the bank—it increases their exposure without getting them anything—so they are under no legal obligation to let a cosigner off a loan without the loan being paid.
If there were fraud—e.g., the cosigner was somehow “tricked” into signing by some misrepresentation—that would be a different matter. In that event, the cosigner may be able to rescind the loan, or at least their own inclusion on it, the same way someone could rescind a fraudulent contract.