Losing a loved one is never easy, and dealing with their financial affairs can be an added burden during this difficult time. One of the questions that may arise is what happens to a financed car when the owner passes away.
Understanding the Car Loan Death Clause
Most car loan agreements include a death clause that outlines what happens to the loan in the event of the borrower’s passing. This clause typically states that the loan becomes the responsibility of the co-signer, if there is one. If there’s no co-signer, the loan falls to the deceased’s estate.
How the Estate Handles the Car Loan
When a car loan becomes part of the deceased’s estate, the executor named in the will is responsible for settling the debt. This may involve using estate assets to pay off the loan or selling the car to generate funds If the estate doesn’t have enough assets to cover the loan, the lender may repossess the car
What Happens if There’s a Co-signer?
If the deceased had a co-signer on the car loan the co-signer becomes responsible for the remaining balance. This means they are obligated to make the monthly payments and ensure the car is properly insured. If the co-signer fails to fulfill these obligations the lender can repossess the car and pursue legal action against them.
Community Property States
In states with community property laws, like California, Arizona, and Texas, the surviving spouse is automatically responsible for all debts, including auto loans, that were accrued during the marriage. This implies that the surviving spouse is still liable for the outstanding amount even though the deceased was the primary borrower.
Options for the Beneficiary
If you inherit a car with an outstanding loan you have several options:
- Continue making payments: You can choose to continue making payments on the loan yourself. This will allow you to keep the car and avoid repossession.
- Refinance the loan: If you qualify, you can refinance the loan into your own name. This may allow you to get a lower interest rate and save money on your monthly payments.
- Sell the car: You can sell the car and use the proceeds to pay off the loan. This may be a good option if you don’t want to keep the car or can’t afford the monthly payments.
Important Considerations
Here are some additional things to keep in mind:
- Contact the lender: As soon as possible after the death of the borrower, contact the lender and inform them of the situation. They will be able to provide you with specific instructions on how to proceed.
- Gather necessary documents: You will need to gather certain documents, such as the death certificate, the car title, and the loan agreement, to handle the estate and the car loan.
- Seek legal advice: If you have any questions or concerns, it’s best to consult with an attorney specializing in estate planning and probate. They can help you understand your rights and obligations and guide you through the process.
Handling a financed vehicle following the death of the owner can be difficult. However, you can handle this challenging situation and make wise decisions regarding the loan’s and the car’s future by being aware of the car loan death clause, your options, and the necessary steps.
How a car loan is handled after someone passes away can vary depending on the state of the will and the estate.
Shutterstock Article QuickTakes:
When a loved one dies, the surviving family members usually have to deal with both the estate settlement and their own grief. There can be a lot of tricky situations to manage, especially when it comes to financial considerations. For instance, it can be difficult to know what to do if a deceased person had debt, such as a car loan.
Weve got you covered. Heres what happens to a car loan when someone dies.
How a Car Loan Is Handled After the Owner’s Passing
When someone dies while they still have debt, that debt still exists. The difference is that once the owner of the debt passes, that debt belongs to their estate.
All of the assets and debts (including auto loan debt) that a deceased person possessed make up their estate. Their property, investments, savings, checking account, and any companies they own or have a controlling stake in all also add to their estate. So do their outstanding loans.
The estate will need to pay off as much debt as it can. In some cases, the estate wont have enough assets to pay off all debts. The executor of the deceased’s estate shall endeavor to settle all outstanding debts with the assets of the estate, or as much of the estate as the executor can manage. Usually, the will appoints an executor; however, in the event that the deceased left no will, the probate court will designate an administrator. This person is most likely to be their spouse, child, or sibling.
Dealing With A Car Loan After Death
FAQ
What insurance pays off car loan in case of death?
What happens when primary borrower on car loan dies?
Can you take over car payments for a deceased person?
What if my dad passed away and my car is in his name?
What happens to a car loan if a person dies?
The vast majority of car loans are secured loans, but people with good credit sometimes choose to take out an unsecured auto loan. In this instance, if the person dies, the car loan is no different than any other unsecured debt like a credit card or personal loan.
Who pays a car loan if a person dies?
If someone purchases a car or takes out an auto loan in most states, once they die, their estate or any surviving co-signers will be responsible for paying the balance of the auto loan. However, if they are not co-signers on the note, surviving spouses, relatives, and other beneficiaries will not be responsible for paying any debts.
What happens if you sell a car after a death?
At some point, the executor might find it necessary to liquidate all or some of the estate’s assets to pay off the deceased’s remaining debts (credit cards, bank loans, etc.) And that could include selling the car — especially if it’s worth substantially more than the remaining loan balance.
What happens if you die on a secured car loan?
A secured loan is backed by collateral. In this case, that’s the car. If payments on a secured car loan stop for any reason, including the death of the person who signed the agreement, the lender can repossess the car and sell it to cover the unpaid portion of the loan.