After the death of someone close to you, the last thing you want to worry about is your auto loan or your vehicle itself. But if you have a co-signer for your vehicle it is important to understand the implications that could occur after an unexpected death. If your co-signer dies, you take on full responsibility for the loan.
What happens to your car loan when the 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 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.
Typically, the co-signer of an auto loan is just that; another individual — with good credit — signing off to be held financially responsible for the payments if the primary borrower fails to pay. Check the specifics of your loan agreement to see what rights your co-signer holds.
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 their credit and to talk with the lender about the next steps to take.
What to do after death
After your co-signer dies you will most likely take on full responsibility for the management of the auto loan. 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 initially written. You will also need to meet with your lender and present them with a valid death certificate in order to remove the deceased from the car loan. 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.
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.
The bottom line
It will require some legwork to get a deceased co-signer removed from the car loan and title, which can further complicate an already difficult time. If you intend to get a co-signer for a vehicle, be sure to have a conversation with them prior to signing off so that they know their responsibilities if something tragic happens.