If a car loan is in the name of someone who has died, what are the options for their estate? In order to answer that question and more, let’s take a look at some basic legal terms.
When someone dies, the car loan that they have in their name is transferred to the deceased’s estate. The executor of the estate will then be responsible for paying off the loan. Read more in detail here: husband dies car loan in his name.
When most automobile purchasers go into a dealership, the last thing on their thoughts is the possibility of dying before they can completely repay their loan.
A vehicle loan is often a short-term financial obligation. The typical new automobile loan lasts roughly six years, and few of us anticipate to die in that time frame.
It does, however, happen. That’s why most vehicle loan documentation includes a provision called the death clause that describes what happens to a financed automobile if the borrower passes away. It also advises that the debt will not be forgiven on its own.
Is the purpose of a loan important?
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What Is the Death Clause in a Car Loan?
To keep transactions on track, lenders depend on the commitments borrowers agree to in their loan contracts. The death clause in a vehicle loan contract explains what procedures a lender may take to guarantee that the debt is repaid if the borrower passes away.
When a borrower ceases paying payments, whether alive or deceased, the lender may declare the debt in default. Because a car loan is often a secured loan with the vehicle acting as collateral, the lender may seek to seize the vehicle to recoup its losses.
When a borrower dies, though, it isn’t the only remedy a lender has. There are numerous circumstances in which the automobile might stay with a family member or friend as long as regular payments are made, such as moving the loan to their name or refinancing the remaining sum with a new loan.
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Who Might End Up Paying the Bills?
Several variables may influence who is liable for paying loan payments when a vehicle owner dies, depending on local legislation. Listed below are a few options:
A co-borrower or cosigner is a person who joins you in taking out a loan with you.
If you’re a co-borrower or cosigner on a vehicle loan, you should expect the lender to hold you accountable for ongoing payments. You are responsible for the loan. If you don’t make your payments on schedule, the lender might take legal action to reclaim the money. You may need to do some effort to remove the deceased’s name from the loan and/or alter automatic payments to a different bank account if you want to maintain the automobile and preserve your credit.
2. In a community property state, a Surviving Spouse
Spouses in community property jurisdictions are jointly liable for any debts incurred after their marriage. So, even if you aren’t a cosigner or coborrower, the lender may seek payment from you. There are presently nine states that have communal property laws:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico is located in the United States.
- Texas
- Washington
- Wisconsin
If you’re unsure about the status of your spouse’s automobile loan, you may inquire with the lender.
3. A Beneficiary or Surviving Spouse
A surviving spouse who lives in a state where community property does not exist and whose name is not on the automobile loan is not liable for the debt. So, if the automobile is transferred to you after probate, it may be your decision whether or not to accept payments. This also applies to any other recipient who is not named on the loan.
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How Does Probate Affect a Car That Has Been Financed?
The vehicle loan death clause is a mechanism for the lender to advise you about your repayment and ownership alternatives. However, probate is a legal procedure that may establish who is accountable for a financed automobile when the owner passes away.
In most cases, probate is the initial stage in resolving an estate’s financial concerns. It protects creditors as well as recipients. The restrictions may differ somewhat from state to state, but here are some general guidelines.
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1. Liabilities and assets are combined
When a person dies, their “estate” inherits their assets and liabilities – everything that makes up their net worth. A house, assets, a vehicle, and other things are examples. It may also be as simple as a vehicle, a tiny savings account, and a few miscellaneous items. You don’t need to be wealthy to own an estate. It simply refers to what you possess and owe in this case.
Only assets that were entirely held by the dead at the time of death are usually subject to the court-supervised probate procedure. Remember that if you have a cosigner or co-borrower on the auto loan, the payments will fall on their shoulders. The automobile, on the other hand, would very certainly be a probate asset if the dead was the only one listed on the loan.
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2. Debts have been paid and assets have been distributed.
The probate court will appoint an executor or administrator to ensure that the estate’s obligations are paid in full and that the assets are distributed to the rightful recipients. However, since all of this might take time, the executor or administrator may decide to utilize the estate’s funds to cover continuing debts, such as vehicle payments, until the estate is finally resolved.
However, this does not imply that the automobile will automatically pass to an heir at the conclusion of the probate procedure. The executor may need to sell all or portion of the estate’s assets at some time to pay off the deceased’s outstanding obligations (credit cards, bank loans, etc.) Selling the automobile, particularly if it’s worth far more than the outstanding loan sum, might be one option.
The estate, on the other hand, could be able to pay off the automobile loan in full if there is enough money left after other obligations are settled. If this is the case, a beneficiary may be able to take possession of the automobile at the conclusion of the probate procedure without having to make any payments. (Until probate is completed, the title cannot be transferred.)
Finally, if the automobile is still accessible but the estate is unable to pay it off, the legal successor may be identified as a friend or family member who is prepared to repay the loan sum. If no one else is interested, the estate may simply let the lender reclaim the vehicle. The lender would then sell the automobile to recoup its losses and give the estate any remaining monies.
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After a death, a car might be repossessed.
After learning of a borrower’s death, it’s unusual that a lender would instantly reclaim the vehicle. However, if the family fails to make timely payments — whether because they can’t afford it or because the debt has gotten away from them in their sorrow — the lender may pursue the following procedures to recover the money owed:
- Involuntary Repossession: If the lender decides to repossess the car, the proceeds will be applied to the outstanding loan sum. If the sale doesn’t cover the debt, the lender may go after a co-borrower or cosigner, or a surviving spouse in a community property jurisdiction, for payment. The lender can’t compel the surviving spouse or any heirs to pay off the outstanding debt in a non-community property state, but it may make a claim against the estate in probate court.
- Of course, you don’t have to wait for the lender to forcibly repossess your home. The family may request that the automobile be taken up via voluntary repossession if no one wants to accept responsibility for it by making payments or selling it to pay off the debt.
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What Are Some Payment Options for a Car Loan?
You have a few alternatives if you discover you’ve inherited a financed car:
- Even though your name is on the loan, you may not have to make any additional payments if the car’s owner acquired optional credit insurance when he or she signed for the loan. When a borrower passes away, credit insurance may cover all or part of the outstanding sum.
- To avoid conflict with other beneficiaries, you may want to discuss whether the car loan, along with other debts, will be fully repaid when the estate is settled, and how this will affect your overall inheritance.
- If you’re taking over payments and your name isn’t on the original loan, the lender will most likely need you to refinance into a new loan. Compare refi loans on an internet site like Lantern to see what interest rate and payment you could qualify for to see if the cost will match your budget. If your credit is a touch fragile, enlisting the support of a cosigner with strong credit may help you obtain a lower interest rate.
- Is it really necessary to sell the automobile in order to pay off the loan? If you thought you wanted the automobile but then changed your mind, selling it, paying off the loan, and pocketing the difference would be a good idea.
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How to Take Over a Car Loan When the Owner Passes Away
There are a few measures you may take to ensure things remain on track if your name isn’t on the current car loan but you want to lawfully acquire control of a vehicle after the owner passes away.
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1. Obtain a copy of the death certificate for the lender.
If the automobile was part of the deceased’s estate, the executor will usually handle this. If that isn’t the case, you should contact the lender to ensure that the lender is aware that the automobile owner passed away, but that payments will continue.
sabthai / istockphoto / sabthai / istockphoto / sabthai / istock
2. Determine whether someone is making payments
The lender may decide to repossess the automobile if loan payments fall behind, even if just briefly. To make sure the loan is current, check with the cosigner or co-borrower, the estate executor, or anybody else who could be paying the payments. Alternatively, you may contact the lender regarding making payments.
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3. Obtain a new title
It’s a good idea to get the automobile transferred to your name as soon as possible if you’ll be taking over payment responsibilities for the car — and the lender may demand it. You may call your state’s Department of Motor Vehicles for information on the documentation you’ll need and the costs you’ll have to pay once you’re confident the automobile is legally yours.
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4. Get in touch with your insurance agent
Remember to include the vehicle in your auto insurance coverage as soon as feasible. Your agent may assist you in determining what coverage is necessary, or you can do your own research and comparison shopping for a new insurance online.
Drazen Zigic/istockphoto contributed to this image.
5. Figure out how to pay for the car in the most cost-effective way possible.
Unless the previous owner had credit insurance or the estate pays off the automobile, you’ll have to come up with a means to pay for it. Even if the lender agrees to let you take over the original auto loan, you should think about alternative choices.
You may just pay off the full loan amount if the sum outstanding isn’t too big. You might also refinance to get a new loan with a better interest rate and conditions.
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The Remainder
When the owner of a financed automobile passes away, the debt remains in place. Unfortunately, determining who is legally entitled to inherit the automobile and/or accept the loan payments may take months or even years. In the meanwhile, unless the owner has obtained credit insurance, the lender will expect the monthly payments to continue or the car will be repossessed.
If you plan to inherit a financed automobile and want to retain it, you should familiarize yourself with the probate procedure to ensure that everything goes well. If you believe you’ll be able to make payments, now could be a good time to check into refinancing possibilities so you can receive the best loan available.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
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AlertMe
If a person passes away, the car will be sold. The lender can take possession of the car and sell it or keep it as a loan. Reference: how long can you drive a deceased person’s car.
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