While it may have seemed like a good idea at the time, you may now be regretting your decision to co-sign that loan for your family member or friend. After all, he may not be trustworthy and you may end up paying at least part of the loan. Being a co-signer is risky since you are effectively guaranteeing the loan and if the borrower defaults or fails to make a payment, the lender can come after you.
In addition, the borrower’s behavior can affect your own credit status. If he does not pay off the loan, this would be reflected in your credit history since your name is on the contract as a co-signer. If this prospect is keeping you up at night, there are things that you can do to remove your name from the loan as a co-signer.
You should realize, however, that there is no way to actually “remove” your name from the loan contract. The lender will not change the terms simply because he only agreed to the loan because you co-signed it and provided him with an assurance that he would be repaid, no matter what. Otherwise, he would most likely not have provided the loan or only agreed to it but with a high interest rate.
If the borrower’s credit status allows it, you can refinance the loan. Refinancing essentially means getting a new loan with new terms, allowing the borrower to assume the loan in full without a co-signer. Doing this is only possible, however, if the borrower’s credit history allows it. Unfortunately, this may not be feasible if the borrower has a poor credit score.
Your next option is to take over the management of the loan repayments. You have to work with the borrower to ensure that he makes payments on time, even if you actually have to advance him some money. Although this seems like a drastic measure, keep in mind that any hit on your credit score will affect your own ability to access credit for your needs and result in higher interest rates on the loans you are already carrying.
If the borrower puts up an item as collateral, such as a car, and he is unable to make his payments, you can sell it off to pay the loan. Of course, when you sell the item, you may not get its full value and still be liable for a certain amount. This, however, is better than having a low credit score.
If the worst happens and the borrower is simply unable to make payments on the loan, the best course of action may simply be to close the account. Of course, this means that you will have to shoulder the remaining balance, but you are already guaranteeing the loan anyway and it would eventually become your responsibility once the borrower has defaulted.
To sum up, there is really no easy way to remove your name from a loan if you have agreed to co-sign it. You would be better off to think twice and even thrice before you agree to this kind of arrangement.