Dear Driving for Dollars,
If the primary borrower dies before the auto loan is paid off and the loan has a co-signer, what happens to the car? What if the primary borrower leaves the car to someone other than the co-signer in a will?
When a person gets a car loan with a co-signer, both are responsible for making the car loan payments, and both people will have the loan listed on their credit reports. However, depending on how the loan and title are written, the co-signer may or may not have any ownership of the car. Regardless, if the primary person on the car loan dies, then full responsibility would automatically go to the co-signer. The co-signer would want to be sure to keep up with the payments so as not to damage his or her credit and to talk with the lender about the next steps to take.
You’d need to check the specific laws for your state, but in general, it would not matter to the lender if the primary borrower left the car to a third party in a will. The co-signer is still responsible for the car loan. Whether the third party would own the car in part or in full once it was paid off would depend on how the loan and the title were written initially.
The person’s death will certainly muddy the waters. It will require some legwork to get the deceased removed from the car loan and title, and then, if a third party is involved, to determine how the co-signer can move forward with the car loan. It’s possible that ultimately the co-signer could be held entirely responsible for the loan and end up with no ownership of the car.
Ask the adviser