When Someone Dies What Happens to Their Car Loan?

When an individual passes away, his possessions are passed on to someone else according to the specifications of his will or trust documents. If that individual has debt, it must be addressed before possessions can be passed on to his heirs. One of the most common debts in this situation is an auto loan.

Paying Off Loan

One of the options available to the family members of a deceased individual in this situation is to pay off the loan. If the deceased individual left a sizable estate to his beneficiaries, they could use part of that money to pay off the loan. The family can keep the car without having to make ongoing car payments if it chooses this option. The family members can also pay the loan off with their own money if they want to keep the car.

Assumption

Another option that the family members of the deceased individual can pursue is an assumption. An assumption is a process that involves taking over the loan for the individual. The remaining family members can come forward and try to assume the loan. For this process to work, the family members will have to prove that they are creditworthy. The lender must approve the new borrowers before the assumption can take place.

Turning Over the Car

In some cases, the remaining family members may not want to keep the car. When this happens, the family can turn the car back in to the dealer. The lender repossesses the car and take legal ownership of it. The lender then sells the car at an auction to try to come up with the money that it is owed for the car loan. If the lender does not sell the car for the full balance of the loan, it bills the estate for the remainder. (See References 1)

Insurance Payoff

Another scenario that could occur is that an insurance policy could pay off the car loan. When an individual purchases a new car, he has the opportunity to purchase credit life insurance on the loan. With this type of insurance, the insurer will pay for the remainder of the loan balance if the insured passes away. When this happens, the surviving family members get to keep the car after the insurance company has paid off the bill.