After the death of someone close to you, the last thing that is likely to be on your mind is your auto loan or your vehicle itself. But if you relied upon a co-signer to purchase your vehicle, you may need to give your auto loan some thought. It is important to understand the ramifications of an unexpected death of your co-signer. In such cases, you take on full responsibility for the loan.
What happens to a car loan if your co-signer dies?
When a person gets a car loan with a co-signer, both the primary borrower and the co-signer are responsible for making the 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.
Typically, the co-signer of an auto loan is just that; another individual — with good credit — signing off to be held financially responsible for payments should the primary borrower not keep up with the loan. If the deceased individual was the co-signer, little about your loan is likely to change.
“Usually nothing happens. Certainly the lender could take action if they became aware of the death, but awareness would only come if the lender tries to contact the co-signer because the loan is in danger of default,” says Mike Sullivan, a personal financial consultant with the nonprofit financial counseling agency Take Charge America.
If, however, the primary person on the car loan dies, then full responsibility for the loan automatically goes to the co-signer, who will now need to make payments on the debt. If you find yourself in such a situation, be sure to keep up with the payments so as not to damage your credit and talk with the lender about the next steps to take.
“It is the responsibility of the co-signer to make all payments or suffer severe credit and financial consequences,” Sullivan says.
What to do after death
In addition to taking on full responsibility for managing and repaying the auto loan after a co-signer dies there may be some other changes to consider.
If you want to remove the deceased from the car loan, you will need to meet with the lender and present them with a valid death certificate. It is possible that if your co-signer had better credit than you did, thus improving the terms of the loan and lowering your interest rate, that your rates could shift. With that individual deceased it is possible that the lender could adjust the rates to reflect your credit.
Along with this, depending on which of you received the loan bills, you may need to change the address now that you are the primary account holder.
Finally, while you will need to check the specific laws for your state, in general it won’t 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.
“The best advice for a borrower is to keep making timely payments. That is all that most lenders want or expect,” said Sullivan.
The bottom line
The pain of losing a friend or family member can be difficult to deal with. Amid such a challenging time there may be some financial matters you have to sort through, especially if the deceased was a co-signer on your car loan.
If you find yourself in this situation, the first step is to be sure loan payments remain current so that your credit is not impacted. You’ll also want to reach out to the lender to find out if any other action is required.
And remember, regardless of whether the deceased was the primary person on the car loan or simply a co-signer who helped you secure the loan initially, you are now the one who is fully responsible for managing it.