What Happens To a Car Loan When You Die? When a person dies, their car loan does not just vanish, as outstanding debts must still be settled. Generally, car loans contain a death clause outlining the repayment procedure in the event of the borrower’s death. Additionally, if there’s a will, the inheritor or inheritors could also inherit both the loan and the vehicle.
As the state law differs as well as the repayment term. The co-signers or borrower’s estate will assume responsibility for the remaining balance. The estate involves the deceased individual’s overall financial worth, including savings, investments, real estate, possessions, and other assets.
Also, the estate could need to be liquidated to cover the car loan. Understanding state-specific car insurance requirements is advisable. In some situations, the lender may demand refinancing of the car loan following the borrower’s demise. If there is no one to make payments and the estate insufficiently covers the debt, repossession of the vehicle by the lender is a possibility.
What is the Car Loan Death Clause?
The car loan’s death clause is a section within the loan documentation that mainly outlines the lender’s procedures for repayment in the event of the borrower’s death. In addition, if you fail to make payments on the car loan, the lender can declare the loan in default.
Car loans are usually secured loans with vehicles serving as collateral. Additionally, the lender might choose to repossess the car to recoup its losses. However, if a relative or friend continues to make payments on the vehicle. The lender may agree to transfer the loan or refinance into their name.
How to Transfer Car Ownership After Death
Numerous factors depend on the procedure for transferring car ownership following the demise of the original owner. The car title identifies the owner, and regulations for transferring it vary from state to state.
In certain states with community property laws, the vehicle becomes the property of the surviving spouse. Additionally, if the owner did not leave, it can be difficult to assign the title after the owner’s passing.
However, the state probate court, which will be responsible for legal matters following an individual’s death, may determine the appropriate party for transferring the title. This process may extend over several months before it is complete.
Upon getting legal authority to transfer ownership of the car, you must finish the process via the State Department of Motor Vehicles (DMV). Moreover, this entails submitting documentation, including a death certificate, your photo identification, and a court-issued letter.
How to Sell a Car to a Deceased Person
Possessing a vehicle with a deceased individual implies that you can facilitate a smooth transition to full legal ownership. After contacting the DMV and transferring the car title into your name, you gain the authority to sell the vehicle.
Additionally, selling the vehicle is very simple if you are an executor of the deceased person’s estate. In addition, the DMV may necessitate specific paperwork and fees before the sale.
During the sale process, you will enroll for the title with your name and your part as the executor of the deceased person’s estate. Lastly, allocating the title becomes the responsibility of the buyer.
What to Do If a Car Owner Dies
If the individual who owned a vehicle with an unpaid loan has passed away, here are the necessary steps to take:
Reach Out to the Lender
If the borrower of a car loan passes away, it’s important to inform the lender and provide them with a copy of the death certificate. This will allow the lender to update their records and start the process of determining what happens to the car loan. It’s also recommended to consult with an attorney or financial advisor for guidance.
The lender will guide you through the required steps concerning the loan, including reaching out to any co-signer. Additionally, they may offer you detailed loan documentation outlining monthly payments, the remaining loan term, and the payoff amount, subject to the lender’s protocols.
Find Who Will Make Payments
Individuals who are accountable for making payments on an unpaid car loan are determined by our specific situations. A co-signer or co-borrower can take responsibility for making payments if they are on the loan.
In addition, surviving spouses in community property states might take some responsibility or all the remaining balance on the late spouse’s car loan. In cases where the deceased didn’t reside in a community property state, their outstanding debt will be paid by their estate.
Moreover, the estate’s executor oversees the probate process. This involves gathering and potentially selling assets to settle outstanding debts. However, it’s crucial to ensure that someone continues making loan payments to avoid the risk of the lender repossessing the car.
Allocate the title and register the Car
It’s important to know what happens to your car loan when you pass away. If there’s a co-borrower with joint ownership of the car, they will take over the vehicle, its title, and the loan. However, if there’s no co-borrower, ownership of the car will be determined during probate. In cases where the primary borrower passes away without being married or having children, their assets usually pass to their surviving parents.
Moreover, if the parents are also deceased, the assets may go to their siblings. It’s important to note that the transfer of the car’s title cannot occur until probate is finalized.
Also, if the car is not part of the probate process, the joint owner or inheritor of the vehicle can proceed with the transfer. They must bring the car title and the death certificate of the previous owner. To their local Department of Motor Vehicles (DMV). Lastly, if the individual assuming ownership is not the beneficiary, they may also be required to present an affidavit.
Insure the Car
If you are going to secure ownership of the car, you will need to purchase car insurance. If you already have insurance for another car, you can contact your agent to determine the type of coverage required for the newly acquired vehicle.
Conclusion
Any outstanding car loan debts require repayment even in the event of the borrower’s death. Moreover, lenders are not allowed to forgive the unpaid debt and retain the right to repossess the vehicle. Lastly, individuals inheriting a deceased borrower’s car loan debt might refinance for a reduced monthly payment.