What Will Happen to a Car Loan When Someone Dies?
When you get a car loan, you are legally responsible for making the payments on that loan. Many people chose this option as a way to get to their dream vehicle as soon as possible. But what happens if something goes wrong and you can’t make the payments anymore?
In this article, we’ll explore what exactly happens to auto financing if someone dies.
If you have a car loan and someone dies, the loan will most likely still need to be paid off. This automobile loan financing may be transferred to another person if they are able to make the payments, but the lender will still need to be paid in full. In case this loan is not paid off, the car may be repossessed by the lender.
These are just some of the reasons why it’s essential for a borrower to read the terms and conditions of a loan before signing anything.
What Happens to a Car Loan If a Car Owner Dies?
When a car owner dies, their loan does not necessarily die with them. If the car was purchased using a loan, the lender will still require that the loan be paid off in full, even though the borrower is no longer alive. In some cases, the lender may allow the surviving family members to assume the loan and continue making payments.
However, this is not always an option and it depends on the terms of the vehicle loan borrower agreed on. Additionally, if this loan cannot be assumed by another party, then the surviving family members will likely have to sell the car in order to pay back the borrowed money.
Car Loan Death Clause
After you get a car loan, like with any other arrangement of this kind, you have agreed to make payments on the loan for a certain period of time. But before signing anything, you may be wondering, what happens if something goes wrong and you can’t make the payments anymore? That’s where the death clause comes in.
The death clause is a provision in your car loan financing contract that says what will happen to the loan if you die. In most cases, the lender will require that the loan is to be paid off in full even if you are no longer among the living. This means that your family will need to come up with the money.
If you decided to get a co-signer when you were applying for automotive financing, they will be responsible for making the payments if something happens to you. Or, in some rare cases, the lender could allow your family to take over the payments instead of a co-signer. It all depends on the terms of your loan contract.
So, if you’re thinking about getting a car loan, be sure to read the death clause carefully so you know what could happen to the car and auto loan you took out.
Community Property States
Let’s say you live in a community property state, well, in this case, your car loan may be subject to division during a divorce. In community property states, all assets and debts acquired during the marriage are considered jointly owned by both spouses. This means that if you take out car financing during your marriage, your spouse may be legally responsible for repaying the debt even if they are not the primary borrower on the loan.
If one spouse dies, the surviving spouse will be responsible for repaying the entire loan if they live in a community property state. This debt is considered to be jointly owned by both spouses, so there is no way out of it. In case the surviving spouse is unable to repay the loan, the lender may attempt to collect from the estate of the deceased spouse.
Who Might End Up Making the Payments After the Car Owner Dies?
Well, the simplest answer to this is that whoever inherits the vehicle will be responsible for making the payments. The car can be leased and then the lease will likely be terminated and the heir will be responsible for any early termination fees.
If the car is financed, then the lender may demand that the balance of the loan be paid in full or may allow the heir to assume responsibility for making the payments.
This all depends on the lender that the borrower chose, so go over the loan agreement once again to gather all the necessary information.
What to Do After a Car Owner’s Death?
Nobody likes thinking about their own death, but, if you plan on taking out a loan, you should consider how your death will affect those around you in a financial way. Having automobile financing and the primary borrower passes, the loan may become due immediately. This is because most car loans require that the borrower maintain insurance on the vehicle. If the borrower dies and the insurance policy lapses, the lender may demand that the loan be repaid in full.
In case you are the spouse or child of the deceased borrower, you may be able to assume the loan and continue making payments. However, this will depend on your relationship with the lender and whether or not you can qualify for the loan on your own.
If you are not able to assume the loan, you will need to repay the outstanding balance of the loan. You may need to sell the vehicle to do this, but if you owe more than the vehicle is worth, you will need to come up with the difference in cash.
After a car owner’s death, their family members are often left wondering what to do with their car loan. If you find yourself in this situation, be sure to contact your lender as soon as possible to discuss your options.
What Are Some Payment Options If You Inherited a Car Loan?
There are a few options available to you if you find yourself in the position of inheriting a car loan. You can choose to continue making payments on the loan and keep the car, sell the car and use the proceeds to pay off the loan, or simply hand the car over to the lender and be done with it.
Obviously, each option has its own set of pros and cons that you’ll need to weigh before making a decision. Keeping the car means you’ll have transportation but you’ll also be stuck with monthly payments. If you sell the car, you may be able to pay off the loan completely but you’ll have to find another way to get around. And if you just hand the car over to the lender, you won’t have it anymore but you also won’t have a debt hanging over your head.
The best option for you will ultimately depend on your personal circumstances. If you need a car and can afford the payments, keeping it may be the way to go. But if you don’t need a car or can’t afford it, selling it or giving it back may be a better choice.
It’s crucial to think about what would happen in this scenario as well, if you are considering getting into the world of automotive loans. While it may not be the most pleasant topic to think about, it’s important to have a plan in place in case something does happen to you.
You cannot really go around expecting from a lender to forget the outstanding amount if you die. It’s only logical from the lender’s perspective to repossess the car or expect someone else to pay the amount borrowed.
Talk to your family about your plans and make sure they know what to do if something unfortunate happens to you.