What Happens to Your Car Loan (and Your Car) If You Die

In addition to designating heirs for your bank accounts, retirement investments, and real estate, you must also think about what to do with your car and car loan.

Helping your heirs to understand your wishes allows them to quickly settle your estate so they can use the money you have left behind to get ahead financially .

Here are some things your loved ones should know about your car and car loan, and what happens to both when you die.

Who is responsible for the car loan?

In the event of your death, your car loan doesn’t just disappear. Instead, there will be someone responsible for it.

If you have a co-signer on the loan, this is the first person the car loan lender will contact. Or, if you have a spouse who is a co-borrower, that person will become responsible for the loan.

If neither of those situations is in play, the loan will probably become part of your estate.

What happens in community property states?

Some states view the property of one person as the property of their spouse as well. For example, a home that you own in your name is considered to belong to both you and your spouse.

The same is true for a car loan. Your spouse could be responsible for the rest of your loan even if their name isn’t on the loan document. However, this typically is the case only in situations where you applied for the loan after you got married.

If you live in a community property state, make sure your spouse is aware of your loan and that they will have responsibility for the loan after you die.

Community property states include:

• Arizona
• California
• Idaho
• Louisiana
• Nevada
• New Mexico
• Texas
• Washington
• Wisconsin

Alaska also uses community property law in some situations.

What is a car loan death clause?

Car loans often have a death clause that clearly states what will happen to the loan after you die. It also explains who must make the payments.

In addition, some car loan death clauses specifically state that the loan must be refinanced upon your death. The clause also might state that if payments are not made after your death, the car is subject to repossession.

Will my car and car loan end up in probate?

Contrary to popular belief, having a will typically does not allow you to avoid probate. But spelling things out in a will — such as who gets the car itself — can make the process run smoothly and save your heirs time and money.

The probate court will give an executor or administrator the task of reviewing your assets and liabilities.

The car itself is an asset. But the car loan is considered a liability, and the executor or administrator may use your remaining assets to pay any bills and debts, including the car loan.

Who is responsible for the title transfer?

Whoever gets the car will need to have the title transferred into their name.

Check with your state on the requirements for how an heir should transfer the title upon your death. The person who gets the car may need your death certificate or other documentation with them when they try to transfer the title.

What is credit life insurance?

A specific type of life insurance known as credit life insurance can be used to help your heirs pay off all your remaining debts when you die.

These debts could include different types of loans, including mortgage, credit card, student loan, and auto loan debt.

Is this coverage right for you? It depends. Like all types of insurance, there are pros and cons to this coverage. So, discuss this type of plan with your insurance agent so you can get a better sense of whether it is right for you.

Bottom line

When you die, you won’t take your car and car loan with you. That’s why it’s important that your heirs understand who will be responsible for these aspects of your life.

Make sure you have a will that’s updated so your loved ones know exactly what to do when you die.

You want to make it easy for your heirs to get rid of your debts quickly so they can focus on reaping the benefits of the legacy you have left behind for them.

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