While no one wants to think about dying, anything can happen. And unfortunately, if you take out an auto loan and pass away before paying it off, the loan doesn’t just go away.
If you’re wondering what happens to a car loan when someone dies, here’s what you should know.
What Happens to an Auto Loan If a Car Owner Dies?
If someone dies before paying off an auto loan, the loan will typically become part of the deceased’s estate, which includes all of that person’s assets as well as any outstanding debt. The executor of the estate is responsible for paying off these debts with the available assets. After this, anything that remains will be distributed to beneficiaries through probate, a court process that analyzes the deceased’s will and ensures it is carried out.
However, if the auto loan has a co-signer or co-borrower (such as a surviving spouse), the car and its payments will become that person’s responsibility.
Car Loan Death Clause
Car loan agreements usually include a death clause that covers what the repayment process will look like if the borrower passes away. This clause typically explains that if there’s a co-signer, payments will be that person’s responsibility—but if not, the payments will fall back on the deceased’s estate.
There are also some lenders that require the car to be refinanced if the primary borrower dies. Additionally, if the loan is secured by the vehicle—as most auto loans are—then the car could be repossessed by the lender if payments aren’t continued. The exact terms of the death clause will vary depending on the lender as well as your state’s laws.
Community Property States
Laws surrounding debt after someone dies are different in community property states. There are nine of these states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Alaska also adheres to community property laws in some situations.
In these states, property or assets acquired or loans originated by one spouse during marriage become jointly owned and are the responsibility of both spouses. This means that if a spouse dies with an outstanding car loan, the remaining spouse will generally be on the hook for repaying some or all of the remaining debt. For example, if one spouse owes $20,000 on an auto loan, the other will be responsible for $10,000 of that debt—even if that spouse was never listed on the loan or car title.
However, these rules don’t apply if the car loan was taken out before the spouses married. Only debt incurred during a marriage will be impacted by community property laws. Liability can also be changed if spouses decide to sign a pre- or postnuptial agreement declaring that their debt and income will be handled separately.
Compare Rates and Save on Your Auto Loan
Get up to 4 loan offers in minutes at myAutoloan.com.
What to Do If a Car Owner Dies
If the owner of a car with an outstanding loan has died, follow these steps:
1. Contact the Lender
The first thing to do is to reach out to the lender and let them know that the primary borrower on the loan has passed away. Be prepared to provide a death certificate for their records.
The lender should walk you through what needs to happen with the loan, such as contacting a co-signer. They might also be able to provide specific loan documentation detailing monthly payments, the time remaining on the loan term and the payoff amount, depending on the lender’s policies.
2. Figure Out Who Will Make Payments
Who is responsible for making payments on an outstanding auto loan will depend on your specific situation.
- A co-signer or co-borrower: If there’s a co-signer or co-borrower on the loan, responsibility for repayment will fall to them.
- A spouse in a community property state: If you’re a surviving spouse in a community property state, you might be liable for some or all of the remaining balance on your late spouse’s auto loan.
- The deceased’s estate: If the deceased didn’t live in a community property state, their unpaid debt will fall to their estate. The executor of the estate (or someone appointed by the court if an executor wasn’t chosen prior to the borrower’s death) will handle the process of probate, which includes collecting and possibly selling assets to pay off outstanding debts.
Be sure that someone continues paying the loan, or you might risk having the car repossessed by the lender.
3. Transfer the Title and Register the Car
If there’s a co-borrower with joint ownership of the car, they’ll assume the vehicle, its title and the loan after the owner dies. But if not, who takes ownership of the car will be decided during probate. If the primary borrower dies without getting married or having children, their assets will typically go to their surviving parents (or to their siblings if their parents have also passed away). Keep in mind that the title of the car can’t be transferred until probate is completed.
To proceed with the transfer process, the executor will need the following:
- Probate court order allowing for vehicle transfer
- Current vehicle title
- Death certificate of the former owner
- Odometer disclosure statement
- Transfer fee
If the car isn’t included in probate, the joint owner or inheritor of the vehicle will be able to perform the transfer. To do so, they’ll need to take the car title and death certificate of the former owner to their local Department of Motor Vehicles (DMV). If the person assuming ownership isn’t the beneficiary, they might need to also provide an affidavit.
4. Insure the Car
If you’ll be assuming ownership of the car, you’ll need to also purchase insurance for the vehicle. If you already have insurance on another car, you can reach out to your agent to see what sort of coverage you’ll need.
Options for Paying Off the Car Loan
If you’ve inherited a car with an outstanding loan, here are some potential options to consider:
Estate Pays Off the Loan
In some cases, it might be easiest to simply have the car loan repaid by the estate—or possibly even have the car sold by the estate to help cover the outstanding debt. Be sure to discuss it with the other beneficiaries of the estate to help avoid any tensions.
Repay the Loan through Credit Life Insurance
When someone takes out an auto loan, they often have the choice of adding credit life insurance to their loan, which will cover their remaining payments if they die. If you find that the deceased purchased credit life insurance, the policy could repay some or all of the outstanding balance.
Refinance the Car
If you end up assuming responsibility for a car but your name isn’t on the loan, the lender will likely ask you to refinance the car into your name. Depending on your credit, you might qualify for a lower rate through refinancing, which could save you money on interest and potentially help you pay off the loan faster.
Before you refinance, it’s a good idea to shop around and compare your options from not only the original lender but as many lenders as possible. This can help you find a good deal more easily.
Keep in mind that you’ll generally need good to excellent credit to get approved for refinancing—a good credit score is usually considered to be 670 or higher. If you’re struggling to qualify, you could consider applying with a co-signer to improve your approval chances. A co-signer can be anyone—such as a parent, another relative or a trusted friend—who has good credit and who is willing to share responsibility for the loan.
Sell the Car
Depending on your situation as well as the condition of the vehicle, you might decide to sell it. Keep in mind that you’ll need to make enough on the sale to cover the remaining balance of the loan—or you’ll be stuck paying that off yourself.
Featured Partner Offers
1
Consumers Credit Union
5.94%
Starts at $7,500 (no max)
620
