There’s a lot to consider before taking out a finance agreement, as we have discussed previously. But one of the things that almost no-one considers before taking out car finance is: “What would happen to this car finance agreement if I should die before it’s paid off?”
Yet it’s an important question, with potentially serious implications for your loved ones. We regularly get questions from readers who have had a loved one die, wanting to know what to do about their car finance. So it’s worth understanding what would happen if the worst should occur.
A time of bereavement is obviously difficult enough already, without having to deal with a finance company demanding payments. The current lockdown situation across the UK makes simple arrangements even more complicated, so hopefully the following information will be helpful in understanding how it works and what will happen.
Your car finance debt does not disappear after you die
Many people assume that any debts would be written off after they die, but that’s rarely the case. And when it comes to a car finance debt, the finance company is still entitled to its money back.
If you have a personal contract purchase (PCP), hire purchase (HP), personal loan or any other kind of borrowing to finance your car, that debt remains payable even in the event of your death. However, the right way to deal with that debt is different depending on the type of finance product you have.
A lease is different again, as you are not borrowing any money and are simply renting the car. A car leasing agreement will have early termination penalties that apply for ending a lease early.
Who is responsible for your car finance debt after your death?
This depends on the type of finance and how it was taken out.
If you have a guarantor, they will become responsible for the finance agreement, just as they would if you were unable to make your monthly payments.
If you took out a joint agreement, which is quite common for a personal loan situation, then the other person becomes fully responsible for paying off the debt.
In most other cases, your debt will become part of your overall estate after your death. If you have a will, your nominated executor is responsible for managing your financial affairs, including your car finance debt.
If you do not have a will, an administrator will be appointed – usually a next of kin. This can get very messy, so make sure you write a will and appoint an executor.
How is your car finance settled after your death?
For whoever is in charge of the estate, the process for settling the debt will become part of managing all the expenses of the estate. This also includes loans like your mortgage and other debts, and costs like funeral expenses and any outstanding bills.
If the finance was on a personal loan, which is an unsecured loan, then the car is the property of the estate. If necessary, it can be sold to help pay off the car loan or any other debts.
Because the finance is not secured against the vehicle, the executor/administrator is free to decide what to do with it. If it’s not necessary to sell the car to settle the finance, they could give the car to your next of kin or sell it via whatever means they choose. This means that the car could be sold privately, sold directly to a trader or sent to auction. It all depends on whatever the executor decides is likely to get the best sale price for your estate.
Secured loans include a personal contract purchase (PCP), hire purchase (HP) or conditional sale. In this situation, the vehicle is not your property and belongs to the finance company until the last penny is paid off.
The executor of the estate is able to settle the outstanding debt and keep the car if there is enough money to cover the settlement figure in the estate. However, more often that not, this won’t be the case – especially if there are other large bills that also need to be paid.
Usually, the finance company will take the vehicle back and sell it at a trade auction. Whatever it earns at auction (after auction fees) is taken off your debt. If the selling price is enough to cover your debt, then the finance is settled. Usually, however, the selling price does not cover the total debt, so your estate will still owe the finance company whatever is still outstanding.
Another option with a secured loan is for the executor/administrator to enact a voluntary termination of your finance agreement. This requires you to have repaid more than 50% of the total amount payable, which you may have already done. If not, the executor can pay whatever is needed to bring the total paid up to the 50% point. The car is collected by the finance company with nothing further to pay, assuming you have complied with the normal conditions of voluntary termination.
With a lease agreement, such as personal contract hire, there is no debt because you have not borrowed any money. It’s simply a rental contract for X months at £Y per month. However, all lease agreements will have early termination charges. These apply regardless of the reason for the agreement being ended early – even if you die. They should be set out clearly in the lease contract, so take note.
The leasing company will take its car back, but the executor may still have to settle any penalty fees for terminating the agreement early. These fees can be quite substantial, which is an unfortunate reality of leasing a car.
What if there’s not enough money to settle my car finance debt?
The finance company will expect your estate to pay off the settlement figure for your debt. It will provide the exact debt amount to your executor/administrator. However, with all of the other expenses associated with settling your finances, it is entirely possible that there might not be enough money to go around.
There’s nothing to stop the executor or administrator negotiating a settlement with the finance company for a lesser amount than is owed. If it’s a choice between taking legal action (which offers no guarantee of getting their total debt back) or taking a reduced settlement, the finance company may be prepared to take a percentage of the total and write off the rest. This is something that should be done in conjunction with professional legal assistance.
Dealing with the death of a loved one is a difficult enough time already. It’s even harder if you have a car finance company circling like a vulture, wanting payment for an outstanding debt. If you’re taking out car finance, make sure you understand the potential implications of your debts on your family or loved ones if you should die.
- More car finance advice from The Car Expert
Here at The Car Expert, we are building commercial partnerships with companies who can offer you competitive PCP deals on either a new or used car (as well as other types of finance if you prefer). Check these out before signing any finance agreement with a car dealer:
Does a Car Lease End Automatically When You Die? Unfortunately, your car lease terms will remain in effect after your death. Regardless of how many payments were left unpaid when you died, all of it must be repaid in full after you pass.What happens to your finance when you die? ›
When someone dies, their debts become a liability on their estate. The executor of the estate, or the administrator if no will has been left, is responsible for paying any outstanding debts from the estate.Does a contract terminate on death? ›
Generally, contracts of the dead survive to haunt the living; the executor or other successor must perform the decedent's remaining contractual duties. A major exception is that personal service obligations die at death.What happens to car loan if borrower dies? ›
What does this mean? Death does not extinguish any debts or loan obligations. Unfortunately, it will remain until it is paid by the estate.What debts are not forgiven at death? ›
As a rule, a person's debts do not go away when they die. Those debts are owed by and paid from the deceased person's estate. By law, family members do not usually have to pay the debts of a deceased relative from their own money. If there isn't enough money in the estate to cover the debt, it usually goes unpaid.Do banks need original death certificates? ›
The bank is likely to ask for two forms of your identification (usually a passport or driver's licence, or a proof of address with a utility bill) and a copy of the will. If there's no will, the bank could ask for evidence of your relationship to the deceased. You'll also need the death certificate.Do your debts die with you if you have no assets? ›
If you have no assets then payment of debts does not arise. Whatever assets you do have will be used to pay off your debts in the following order of priority: Funeral, testamentary and administration expenses. Creditors who have security, for example, mortgage providers.What are death clauses? ›
A death and disability clause allows a tenant to step away from their commercial lease, even if the lease's terms are not up, if the main practitioner dies or becomes disabled and cannot work. This is a common clause considered for medical and dental practices that have one lead provider.What happens if someone dies while buying a house? ›
What happens on completion? For properties where the Deceased was the sole owner – 100% of the net proceeds of sale are paid into the Deceased's Estate. For properties that were held as Joint Tenants – all of the net proceeds of sale go to the surviving co-owner.What is the effect of death of one party on the contract? ›
Answers ( 2 ) When someone dies before completing an agreement to sale an immovable property, the agreement is valid and remains valid upon the death of the seller and it should be completed by all the legal heirs of the decides.
Car loan after your death
Car loans are not forgiven at death so, if your estate can't cover the debt, the person that inherits the vehicle needs to decide whether they want to keep it. If they do want to keep the car, the inheritor can take over the auto loan payments and maintain possession of it.
Answer provided by. “Some lenders will forgive auto loans, but this requires the borrower to voluntarily turn over the car. However, just because the lender takes back the car does not automatically mean the loan is forgiven. If this is your only option, you should call your lender to ask how they will work with you.How do you assume a car loan after someone dies? ›
- Step 1: Send a death certificate to the lender.
- Step 2: Keep making payments.
- Step 3: Verify credit life insurance or the estate's ability to pay down the loan.
- Step 4: Refinance the loan if necessary.
Do credit card debts die with you? A common misconception is that any credit card debts are automatically written off. Instead, any individual debts must be paid using the money the deceased has left behind. Only if there isn't enough money in the Estate may the debt be written off.What happens when someone dies with debt and no assets? ›
Generally, the deceased person's estate is responsible for paying any unpaid debts. When a person dies, their assets pass to their estate. If there is no money or property left, then the debt generally will not be paid. Generally, no one else is required to pay the debts of someone who died.Can you use a deceased person's bank account to pay for their funeral? ›
Many banks have arrangements in place to help pay for funeral expenses from the deceased person's account (you should contact the bank to find out more). You may also need to get access for living expenses, at least until a social welfare payment is awarded.How long after death are banks notified? ›
Notify insurers and creditors
Ideally, as soon as possible after receiving the death certificate, or within a month of the death.
Banks won't necessarily know that a customer has died, so it is important to notify the bank as soon as possible. Anyone can notify the bank but typically this responsibility would fall on the next of kin or the estate representatives.How do banks find out someone has died? ›
The main way a bank finds out that someone has died is when the family notifies the institution. Anyone can notify a bank about a person's death if they have the proper paperwork. But usually, this responsibility falls on the person's next of kin or estate representative.Do children inherit debt? ›
A: In most cases, children are not responsible for their parents' debts after they pass away. However, if you are a joint account holder on any credit cards or loans, you would be liable for paying off the amounts due.
In most cases, an individual's debt isn't inherited by their spouse or family members. Instead, the deceased person's estate will typically settle their outstanding debts. In other words, the assets they held at the time of their death will go toward paying off what they owed when they passed.Who is responsible for personal loan after death? ›
Legal heirs are solely accountable to the degree that they receive any assets from the borrower. For example, if a legal heir inherits property worth Rs 1 lakh, the legal heir will only be liable to the deceased's lender for that amount, not more.What happens if my husband dies and im not on his bank account? ›
If there is no beneficiary, the funds go to the deceased's estate. From there, any remaining funds will be distributed according to instructions in the will. If there is no will, state law typically dictates who receives the funds. 1.What happens to your money when you die without a will? ›
In this situation, the deceased's closest living family member can assume the role of administrator of the deceased's estate without the need of applying to the High Court. The administrator's task is to distribute any property or assets to surviving family members according to the rules of the Administration Act 1969.What happens to bank accounts with no beneficiary? ›
If a bank account has no joint owner or designated beneficiary, it will likely have to go through probate. The account funds will then be distributed—after all creditors of the estate are paid off—according to the terms of the will.Who notifies the bank when someone dies? ›
Banks won't necessarily know that a customer has died, so it is important to notify the bank as soon as possible. Anyone can notify the bank but typically this responsibility would fall on the next of kin or the estate representatives.