How to De-register Yourself from a Co-signed Loan
by Clare Louise | May 25, 2018 10:01 am
Banks insist on a co-signer whenever anyone applies for a Home Loan. It can be due to various reasons. You can be the co-owner of the property. Under such circumstances, you necessarily have to be the co-signer. Otherwise, you might be theprimarybreadwinner of the family. You might offer to be a co-signer to improve the eligibility criteria of the other co-signer.
Banks love to have a comfort zone while approving the Home Loan. It might have been part of the terms and conditions of the lenders to provide Best Home Loan Offers to their customers. At that point of time, it might have been the only option available. However, do you know that offering your name as a co-signer is easy, but de-registering yourself from a co-signed loan is a cumbersome task?
What does the co-signing of a loan signify?
Co-signing a loan is a confirmation to the bank that you are willing to pay the loan instalment if the other person fails to do so. Remember, your liability exists even if the other co-signer files for bankruptcy or expires before paying the debt.
Would you like to remove your name from the co-signed debt? The bank will not do so until the other party exhibits its capability to handle the loan on their own. Is it possible? Usually, it does not happen this way. If it were so, the banks would not have asked you to be a co-signer in the first place. However, if there is an increase in the income levels and the repaying capacity of the other co-signer, banks do consider such requests from your side. It usually happens in student loans.
How do you remove your name from a co-signed loan?
- Co-signer release clause: Some loans have a condition of releasing the co-signers obligation after the repayment of a certain number of instalments. Check out your loan agreement if there is any such condition.
- Refinance: The other option before you is to have the co-borrower refinance the loan in their name. However, the borrower should have a good credit history and sufficient income to take over the loan. It happens in student loans.
- Dispose the asset and close the loan: If you are the co-signer for a car loan or a Home Loan, and the other borrower fails in discharging their liabilities, you can sell the asset and use the money to settle the loan. You should be the co-owner of the property under such circumstances.
- De-register from a Credit Card account: If there is no balance in the Credit Card account, the banks should not have any problem in removing your name from the account. However, if some amount is payable on the card, the banks would insist on clearing the payment before de-registering your name from the co-signed Credit Card. The co-borrower can also apply for transferring the balance in the co-signed card into their name. You should apply to the bank to add a comment in the system that there should not be any revival in the existing card account.
- Pay the balance and get rid of your name: It is a hard decision to make. You are paying off a debt that you have not incurred. However, it is better to close the card account rather than ruining your credit score. You should not forget to ask the bank to freeze the account so that no one misuses it again.
- De-registering from a forged loan: Your decision depends on who has forged the loan documents. If a loved one has done it, you would instead let the account continue in the ordinary course or try to dispose the asset and close the loan. However, if there is an involvement of a third party borrower, you can complainwith the police and submit an affidavit to the bank informing them of the forgery and your complaint to the police against the same. You can also take any of the actions mentioned above such as refinance the loan, transfer the balance if it is a Credit Card account, or ask the forger to dispose the asset and close the loan.
- The Last resort: If you are unable to do any of the actions mentioned above, the only course left is to continue paying the instalments until the co-signer becomes capable of handling the loan on their own.
Co-signing a loan is not an issue as long as the payments are in order. It becomes a significant issue only in case of default on the part of the co-borrower. However, you should check the loan status from time to time to ensure that the borrower is repaying the instalments. Otherwise, you not only end up with a significant liability you did not incur but also damage your credit score.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.
Also Read: 5 Things to Keep in Mind if You Are Planning to Purchase a Home
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- Best Home Loan Offers: https://www.mymoneymantra.com/home-loan.html
- 5 Things to Keep in Mind if You Are Planning to Purchase a Home: https://www.mymoneymantra.com/blog/5-things-to-keep-in-mind-if-you-are-planning-to-purchase-a-home/
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