Going through a divorce or break up is hard, and having to deal with its financial consequences can seem even harder.
But, you have options to get out of a car loan. And we’re here to help.
Separating from a partner takes time and can be a difficult experience. When it comes to parting from your ex, you may have already taken the hard steps of separating, cleaning out the closets, and deleting everything off your social media accounts.
However, have you considered your car? If the two of you were financially intertwined, it’s important to decide how to proceed after a breakup, even if the process seems stressful and daunting.
Auto Loan Debt: Who is Responsible?
Because both people signed a legal contract to pay for the vehicle, removing them is not as easy as just calling the finance company. When you purchased the vehicle, the payments were calculated based on the financial circumstances and income of both you and your ex. This means the situation changes when one person is removed. Moreover, if either of you stop making payments, it could affect both of your credit.
If a divorce is involved, your decree will dictate who has ownership of the car, and how to handle management of that asset. Before making any decisions, it’s important to understand the stipulations of the divorce decree so that you’re not in contempt.
It’s also necessary to understand that although divorce decree may state that the car is your property due to the settlement, unless you reach an agreement with your lender, your ex is still expected to pay the car loan. If your spouse chooses not to make the payments it affects not only their credit score, but yours as well. You may not realize that your loan is in default until you receive a call from the collection agency. That’s why it’s always smart to make these changes with haste.
However, you’ve got options.
Refinance Your Car Loan
When refinancing your car loan, you are, in a sense, purchasing the car from your ex. This step is possible if the car isn’t too far upside down in its loan. Your first step is to connect with your lender and have a conversation about your loan options. In addition, refinancing can be a fresh start as this new loan will only be for you.
By making this change, you are responsible for making the monthly loan payments on your own. (If you refinance with RateGenius, we might be able to save you some cash in the process, too.)
Prepare yourself for the process by having a financial health check. Review your credit score and see if it has improved since the first time you applied for the car loan. A perfect credit score is not a requirement and isn’t the only factor auto lenders will consider with your application. However, the better your credit score, the lower the interest rate offers you’ll tend to receive.
Gather Your Records
When you start the refinancing process, take a moment to collect all of the following records:
- Current and previous address
- Social Security number
- Current and previous employer
- Name of current employer
- Name of current lender
- The current account number for the car loan
- Divorce Decree (if a divorce is involved)
- Paystubs or W-2 form
- Balance on your current car loan
Give yourself the advantage by being prepared for the application process. Collect information on the vehicle including the make, model, and year. Know the Vehicle Identification Number (VIN) and current mileage. That information will aid you during the loan discussion with a car loan expert (like us).
Consider Having a Cosigner
Consider asking a family member or a trusted friend to cosign for you rather than a romantic partner, just in case. If, after your financial assessment, you believe it’s unlikely that you’ll meet the income or credit requirements needed for a car loan, or a car loan with a decent rate, it might be a wise to get someone with a more stable financial history to cosign for you. This will help you qualify for a loan without your ex’s contribution.
Close Out Your Loan
You need to know the remaining balance of your auto loan in order to pay off your loan in full. This is indicated on your monthly statements, but if that paperwork is not available, then reach out to your lender. Give them an estimated date of when you plan to close out the loan so you have a correct amount of interest along with the principal to pay. If you are able to pay the remaining amount, then close out the loan. Then you will own the car free and clear.
If you do not have extra cash on hand, you may want to consider a personal loan. This option will allow you to pay off the car without going through the process of refinancing. Have your finances ready to show the bank and that you are able to afford the personal loan payments. Make sure not to use your car as collateral during the process. Once you have secured the funding, you can get out of the car loan — and rid yourself — of the car.
If the Car Gets Paid, Does Your Cosigner Matter?
Cosigning is a finance term and does not refer to ownership. It only affects the ownership of the vehicle if their name is on the title. Any cosigner is responsible for the payments or it will affect their credit. However, even though your spouse makes payments, they still may not be owners of the car.
Sell Your Car
If you can’t refinance, you may want to consider selling your car. If you love the car, this may feel like a last resort, but getting out of the car loan is your main goal whatever the cost in most cases.
Before you sell your car, make sure to receive an estimate of the car’s value. However, if you don’t have an emotional attachment to the car, then it could be the easiest way to get your ex off of your car loan.
This can be accomplished by checking out car websites like Kelley Blue Book or Edmunds. Factors such as the cars make, mileage, model, and general condition will affect the car’s overall estimated value. After the sale of the car, take the proceeds to pay off the remaining amount on the loan.
When going through a divorce, some states may award you funds to pay off the remaining amount of your auto loan. Review your divorce decree to see if it contains a Hold Harmless Clause. This is when the law requires you to hold your former spouse harmless on any remaining joint vehicle debt. Your spouse may sue you if he or she is injured in any way from your failure to pay the bill.
With this decree, even if your spouse makes a payment in efforts to be helpful, you are required to pay them back. This may not be your favorite step since you need the car, but it might be in your best interest to have closure in the long-run.
Don’t Forget Your Car Title
The car title is separate from your auto loan, so make sure that your ex is removed from both. Make this happen with a quick trip to your state’s department of motor vehicles (DMV). In order for the change to occur, both parties will need to sign a change of title/vehicle ownership form and then return them back to the DMV to register that with your state.
Connect with the DMV either online or make a call prior to your arrival to confirm any details or download any required forms. Be aware that depending on your state, the transfer may come with a tax or fee.
There are times when removing a name for a car title isn’t all that simple. You will need to have the proper permission to complete this step. Review your car title to see if it says “And/Or,” near the top of the document. This line references the owner of the vehicle; with an “Or” you won’t need your spouse’s permission to remove a name.
However, if you see the word “And” then both of you have equal ownership. If it is just your name on the title, you won’t need anyone else’s permission as the car is yours.
Have you seen the term quitclaim and wondered what it means? It is a simple legal document that states you give up any claim on any property that you appear entitled to.
This occurs in divorce when a spouse gives up a claim to a house or car in exchange of not being responsible for the monthly payments. If you’d rather simply award the car to your ex, and if your divorce is still pending, a quitclaim could be a solid option.
Things to Remember
- You need to get your ex off the car loan and title.
- A perfect credit score isn’t a necessity.
- Don’t wait to remove your ex from your auto loan, as they are still responsible for the payments even if you received the car in the divorce settlement.
Getting out of a car loan is a fairly common practice. Know that you are not alone, and this is a step that you must consider. It is not fair to you and to your ex to keep them on the loan out of anger. If your spouse is cosigned on the loan as well as the title, they could try to claim the car. If your ex decides to not make any payments while you are both responsible, the lack of payment will affect both you and your spouse’s credit scores. The sooner you can have your own auto loan, the better.
We’re here to help you with the title and auto loan agreement. If you decide to pursue refinancing your loan, make sure to make the monthly payments to your current lender. The refinance process may take some time and you will need to stay current on your loan. If you miss payments and go into default it could hurt your opportunity to secure a new loan. Additionally, failing to do so may result in having your car repossessed.
Once you’ve signed the dotted line for your new loan, inform your ex that their responsibilities have changed and the car is no longer their concern.
Everyone loves a lower car loan. We’d love to see if you could receive a lower interest rate, lower payment or preferably both.
About The Author
Julia Guardione is an auto refinance writer based in Austin, Texas. She is a graduate of Texas State University and a lover of all things outdoors.