What Happens to a Car Loan When Someone Dies?

What happens to a car loan when someone dies? It’s a common question with many different answers. To find out what happens in this situation, read on.

Checkout this video:

What Happens to the Car?

If you have a car loan and you die, the car does not automatically go to your next of kin or your estate. The lender still owns the car and can repossess it if you stop making payments. The lender may also sell the car to pay off the loan.

The Car Is Repossessed

If your lender owns your car outright, then it will be repossessed after you die. This is true whether you have a loan or leased the car. The lender can hire a repo company to come and take the car away, or they may ask that your family or estate return the vehicle.

If you have a loan on the car, then your lender may decide to sell the car to pay off the balance of the loan. Your family or estate will not receive any money from the sale, and they will not be responsible for paying off any remaining balance on the loan.

If you leased the car, then your family or estate will be responsible for returning the car to the leasing company. They may also be responsible for paying any early termination fees and any remaining payments on the lease.

The Car Is Sold

If the person who died was the only person on the loan, the lender will likely require that the car be sold so they can recoup their losses. If there are co-signers on the loan, those people will be responsible for repaying the debt. The lender may require that the car be sold in order to repay the debt, or they may allow the co-signers to continue making payments on the loan.

What Happens to the Loan?

While the specifics may differ from case to case and lender to lender, there are some basics you can expect when it comes to what happens to a car loan when the borrower dies. In short, the loan will likely need to be paid off by the borrower’s estate. If the borrower had a co-signer on the loan, that person may be held responsible for the remaining balance.

The Loan Is Paid Off

In the event of the borrower’s death, the loan is paid off and the vehicle becomes the property of the co-signer or the estate, depending on who is named on the title. If the loan is not paid off, the lender may attempt to collect from the estate or require that the vehicle be returned.

The Loan Is Transferred to the Cosigner

If the person who died was the primary borrower on the loan, the loan will need to be transferred to the cosigner. This means that the cosigner will become responsible for making all future loan payments. In order to do this, the cosigner will need to provide proof of income and employment, as well as go through a credit check. Once the transfer is complete, the cosigner will be responsible for making all future loan payments.

The Loan Is forgiven

If the car was financed with a loan, the lender may require that the vehicle be returned or may forgive the debt. The course of action is generally spelled out in the contract. If the contract is silent on the matter, state law will likely apply.

In most states, if the borrower dies and the cosigner is still alive, the cosigner becomes responsible for repaying the loan. The lender may require that the cosigner provide proof of income and creditworthiness before assuming responsibility for the loan.

Some lenders may be willing to work with the surviving cosigner to modify the terms of the loan, such as by extending the repayment period or lowering the interest rate. Other lenders may require that the entire loan be repaid immediately.

If there is no cosigner and the borrower dies, the lender will likely require that the vehicle be returned or may agree to sell it and apply the proceeds to pay off the balance of the loan.