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Can a Co-signed Auto Loan Be Refinanced?

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When insufficient credit or other circumstances make it tough to get a loan, finding a co-signer can turn the tide in your favor. A co-signer is someone who pledges to pay back your loan if you do not meet your loan obligations. While millions of borrowers are grateful for co-signer help, others may worry that having a co-signer attached to their loan might make it more challenging to get an auto loan refinance.

The truth is that a refinance is one of the best ways to remove a co-signer from your financial affairs. In the process of refinancing a loan, your new lender simply pays off your old loan. Doing this automatically ends the loan and releases your co-signer from any obligation attached to that loan.

From that point forward, you are responsible for paying the new lender according to the terms laid out in the refinance loan. The co-signer no longer has any financial relationship with you, including not having any further obligation to any loans attached to you.

If you have not been paying close attention to your loan, it is also possible that the lender may have released your co-signer from the loan long before you considered a refinance. Some auto loans have conditions that release the co-signer once you, as the primary borrower, have made a specified number of auto loan payments. Not every loan has this clause. Check with your lender.

Just remember that if your credit has not improved since getting your original loan, you may have a tough time being approved for your refinance loan or you may pay a higher interest rate than you would like. So, if your credit remains bruised, you may need to ask the co-signer on the original loan if he or she is willing to co-sign again on the new loan.