What Happens to Your Car Loan or Lease When You Die? | Finder Canada (2022)

Generally, nobody gets thrown a car loan they didn’t sign up for — even if you’re named as the beneficiary in the will. But if you cosigned for the car, you’ll be responsible for making repayments. If you don’t assume a loan you’re responsible for, you’ll lose the car and your credit score could be hurt.

4 things that happen to a car loan when the owner dies

In most cases, your relative’s car loan goes through the following 4 stages after they die.

1. It gets combined with other assets and debts in the estate.

After anyone dies, all of their assets and debts are combined into what is called their estate. The estate represents the deceased’s net worth after death.

2. It goes into probate.

Once the estate is established, the deceased’s assets go through a legal process called probate. Probate involves distributing the assets and paying off debts that the deceased left behind.

If the deceased had an estate plan, it should name an executor — someone who handles paying off their debts and distributing assets according to their will. Otherwise, a probate court names an administrator who is responsible for handling the probate process. Usually, the administrator is a spouse, common-law partner or the next of kin.

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3. The lender collects payment from the estate.

During this stage, there are 3 scenarios that can happen:

  • Full repayment. If there’s no cosigner or beneficiary taking over the car loan, the lender can collect full repayment from the estate.
  • Monthly repayments. If someone’s taking over the debt, the lender will continue to collect monthly repayments from the estate before the debt is handed over. Or, a cosigner will continue to make repayments.
  • Repossession. If the estate can’t cover the full cost of the car loan and nobody plans on taking over the car loan, the lender repossesses the car and sells it to cover the loss. It’ll return any remaining funds to the estate.

4. The responsible party covers any remaining cost.

After the probate process is over, anyone who was named as responsible for paying off the loan takes over repayments. If the estate covers the debt or the car is repossessed, then nobody needs to assume the loan.

Who’s responsible for paying off the loan?

How the loan gets paid can vary depending on factors like whether the owner had a cosigner, a life insurance policy or a beneficiary.

If they had a cosigner or co-applicant …

Anyone with their name on the loan is responsible for covering repayments. This includes cosigners, co-borrowers and joint applicants. In fact, there’s no need for probate to transfer the debt since the loan is already under your name. This is true even if you don’t inherit the car.

If you don’t make repayments, the lender can repossess the car and even sue you for repayment if the sale doesn’t cover the full cost.

If they had credit insurance …

Credit insurance is an exception to the cosigner rule. If the owner bought credit life insurance on their car loan, then the insurance company is responsible for covering the debt — even if they had a cosigner or surviving spouse.

If they named a beneficiary…

Anyone who inherits an unpaid car loan has the option to take on repayments if they want to assume the loan. Otherwise, the lender can repossess the car.

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How do I transfer ownership after the car owner’s death?

Generally, you need to follow these steps to make sure the car loan is fully transferred to your name.

  1. Send the lender their death certificate. Make sure the lender is aware the owner died as soon as you can to avoid any delinquencies or defaults on the loan.
  2. Make sure payments are covered. Also reach out to the lender to make sure someone is covering the repayments — be it the estate or cosigner. Otherwise, the lender might try to repossess the car.
  3. Transfer the title. Each province and territory has it own rules for title transferring the title of a car if the owner dies. Reach out to your provincial/territorial ministry of transportation to find out what you need to do.
  4. Pay registration fees and taxes. You’ll also need to register the car in your name and pay the same taxes your province or territory requires after any vehicle is sold.
  5. Sign up for car insurance. Sign up for the legally required car insurance in your province or territory for your new vehicle.
  6. Refinance or pay off the loan. If you think you can get a better deal, consider refinancing with a different lender to help you save on interest. If not, pay it off according to the current rates and terms.

In some cases, it might not be so straightforward. You might want to consider hiring a probate attorney to help you navigate the process of transferring the loan if you’re struggling on your own.

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What can I do if I can’t afford the loan?

Unless you’re a cosigner, you likely don’t need to take over the loan. Beneficiaries can’t be forced to assume a loan they didn’t cosign. In that case, the lender will repossess the car and sell it to cover its losses.

But if the car is worth more than the loan balance, consider selling it yourself and using the funds to pay off the loan. That way, you could make a profit.

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What happens to a car lease when someone dies in Canada?

Similar to what could happen with a car loan after someone dies, you’ll generally have a few options for how to handle a car lease if the vehicle’s lessee dies. If there was a cosigner, than the lease would transfer to the cosigner’s name, and the cosigner would become responsible for making payments on the lease.

If there is no cosigner on the lease, the deceased’s estate will be responsible for making the remaining payments until the terms of the lease are complete. Some dealerships may terminate the lease early, with or without a fee, once they’re notified of the lessee’s death. But the dealership may not be obligated to do that depending on the terms of the lease agreement.

If there isn’t enough money in the estate to cover the remining lease payments, the vehicle would likely be repossessed, and then sold or leased by the dealership to someone else. If there was still any outstanding amount owed on the lease that wasn’t covered from selling or releasing the vehicle, the estate will be responsible for paying the difference. If there is no money left in the estate to pay on the vehicle, the lease is simply cancelled.

Of course, your specific circumstances may be different from the examples given here, and the inheritance laws may vary based on where you live in Canada. The best approach is to discuss your specific situation with an estate lawyer.

Bottom line

You likely won’t have to pay off your relative’s car loan if you didn’t cosign it. But if you inherit a car that’s not fully paid for, you’ll need to assume the loan to keep it. You can learn more about how it all works with our guide to car loans.

Frequently asked questions

  • It depends on the lease. If the lease has a cosigner, the cosigner would be responsible for keeping up lease payments. Otherwise, it’s generally the responsibility of the lessee’s estate.

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  • Generally, debts must be written if the balance can’t be repaid from selling the deceased person’s assets or by someone else taking over repayment. The loan contract should outline what happens if the borrower dies.

    Unsecured debts (for example, credit card balances and some types of personal loans) may be repayable from the estate’s value. However, secured debts (mortgages, auto title loans etc.) will usually take precedence, because the lender was given the right to take possession of the assets used to secure the debt should the borrower fail to repay.

  • An auto title loan is treated like any other type of debt. Generally, title loans don’t have cosigners. But if you did cosign the car loan, you’ll be responsible for paying it back.

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FAQs

What happens to a financed car when someone dies in Canada? ›

Everything they owned, all their savings, their house, car and all their lifetime's achievements. The executor of the will, or family lawyers will manage everything, including paying off the car loan with assets from the estate. If there are sufficient savings or investments, the auto loan will be paid from that.

What happens to a car lease agreement if you die? ›

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 debts are forgiven at death Canada? ›

In other words, if a loved one dies, the deceased's estate is obligated to pay off credit card debts, not you or other family members. However, if you had a joint account, the responsibility would fall on you as the surviving co-signer.

Are car loans forgiven at death? ›

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.

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.

What happens to a financed car when the owner dies? ›

If someone dies before paying off an auto loan, the loan will typically become part of the deceased's estate, which includes all of that person's assets as well as any outstanding debt. The executor of the estate is responsible for paying off these debts with the available assets.

What happens if financed car owner dies? ›

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.

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.

Can CRA come after beneficiaries? ›

CRA can recover the money owed by the deceased, up to the amount that the beneficiary received from the deceased. For an example of this see Tax Court Case Dreger v. The Queen, 2020 TCC 25. The same does not apply when the beneficiary of the RRSP is a former spouse, because they do not fit the above criteria of s.

What happens if 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.

Is the executor responsible for the deceased debts in Canada? ›

The executor is responsible for filing taxes on behalf of the deceased, including income taxes and death taxes. Once the executor has obtained legal authority to distribute the estate, they must pay all outstanding debts and expenses, including funeral expenses and all taxes.

What is a car loan death clause? ›

The car loan death clause refers to a portion of the car loan paperwork. This part of the paperwork specifically outlines the steps the lender will take to ensure it's repaid if the borrower dies. If payments are missed on the auto loan, the lender can consider the loan in default.

Can you get death insurance on a car loan? ›

The owner of the car may have purchased credit life insurance on the car loan. This insurance offers a death benefit that helps pay off a car loan when someone dies. If you find out there was credit life insurance on the car loan, tell the administrator or executor of the estate right away.

Does it matter whose name is first on a car loan? ›

It doesn't matter whose name should come first on a car loan; it's merely a formality. The only thing that truly matters is that both you and your wife can successfully apply for the loan.

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.

What happens to bank account when someone dies without a will in Canada? ›

When a person dies without a will, the provincial government gets to decide who gets the money in your bank account. Provincial governments will often prioritize immediate family members or blood relatives of the deceased person, which can leave common-law partners with nothing.

Can an executor sell car before probate? ›

A motor vehicle is a chattel and you do not have to wait until a grant of probate or letters of administration have been issued to be able to transfer a car to another owner or to sell it.

How do credit card companies know when someone dies? ›

However, once the three nationwide credit bureaus — Equifax, Experian and TransUnion — are notified someone has died, their credit reports are sealed and a death notice is placed on them. That notification can happen one of two ways — from the executor of the person's estate or from the Social Security Administration.

Do credit cards have a death benefit? ›

Credit card debt doesn't follow you to the grave. It lives on and is either paid off through estate assets or becomes the joint account holder's or co-signer's responsibility.

Do you inherit your parents debt? ›

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 medical bills of deceased parent? ›

Medical debt for the deceased is paid by a person's estate — if the estate has enough assets. An estate with enough assets to pay any or all debts is considered “solvent.” If an estate does not have enough assets to pay debts, it is considered “insolvent.” Survivors are not responsible for medical debt, in most cases.

When someone dies what happens to their debt? ›

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.

Is wife liable for deceased husband's debt? ›

When someone dies with an unpaid debt, it's generally paid with the money or property left in the estate. If your spouse dies, you're generally not responsible for their debt, unless it's a shared debt, or you are responsible under state law.

Can you assume a car loan? ›

In most cases, car loans are not assumable,” Edmunds.com Senior Consumer Advice Editor Philip Reed told Credit.com. “When the registration and title are transferred to a new owner, the lender needs to be notified. The lender will then step in and require a credit check to make sure the new owner can make the payments.

Who is responsible for a deceased person's taxes? ›

The personal representative of an estate is an executor, administrator, or anyone else in charge of the decedent's property. The personal representative is responsible for filing any final individual income tax return(s) and the estate tax return of the decedent when due.

How many years can CRA go back on an estate? ›

The CRA audit time limit states that the agency has four years from the date on your Notice of Assessment to go back and conduct an audit. This means if you file your 2017 tax return in April 2018 and receive your assessment in June 2018, the CRA can audit this return until June 2022.

Who signs tax return for deceased? ›

When you're a surviving spouse filing a joint return and a personal representative has been appointed, you and the personal representative should sign the return. A decedent taxpayer's tax return can be filed electronically.

Do I have to pay my deceased mother's credit card debt? ›

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.

How can the elderly stop paying credit cards debts? ›

A bankruptcy can provide senior citizen credit card debt relief. There are several types of debt that can be discharged through senior citizens bankruptcies. This means that the debts will be eliminated, and you will no longer be responsible for paying them.

Do legal heirs have to pay if a borrower dies with loan outstanding? ›

Unsecured loan: In the case of unsecured loans, banks or other financial institutions cannot compel or force legal heirs to pay off the debt in case the debtor dies. This is as there is no collateral against the loan obtained.

What is the normal fee for an executor of a will in Canada? ›

Generally, an estate executor in Ontario gets paid 5% of the estate's value. So if an estate was valued at $250,000, then the estate executor would receive $12,500. The remaining 2.5% represents all revenue receipts and disbursements. However, this percentage isn't set in stone.

Who gets paid first from an estate in Canada? ›

As with an insolvent estate, bankrupt estates are required to pay the reasonable funeral and testamentary expenses first. Secondly, the costs for administering the estate (including compensation for the Estate Trustee and legal fees) get paid. Other specific costs such as wages or commissions owed then can get paid.

Does an executor have to show accounting to beneficiaries Canada? ›

Yes. Before the executor distributes the estate, they have to give the beneficiaries a final accounting of their administration of the estate, including any fee they're charging. And the beneficiaries must agree with it for the executor to proceed.

Can you get death insurance on a car loan? ›

The owner of the car may have purchased credit life insurance on the car loan. This insurance offers a death benefit that helps pay off a car loan when someone dies. If you find out there was credit life insurance on the car loan, tell the administrator or executor of the estate right away.

What happens to my car loan if my co-signer dies? ›

It is important to understand the ramifications of an unexpected death of your co-signer. In such cases, you take on full responsibility for the loan.

Does debt transfer after death Canada? ›

The simple answer to this question is no, your beneficiaries cannot inherit your debt in Canada after you die. Your last will and testament does not distribute outstanding debts to your beneficiaries. Any remaining debt that follows your death will be paid out of your estate.

What happens if 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.

How much does life insurance on a car loan cost? ›

The average cost of credit life insurance is about $. 50 for every $100 borrowed. Let's say you took out a $20,000 auto loan for five years. This means you are paying $100 per year for protection on a loan for which the benefits do not go to anyone else but the lender.

Does it matter whose name is first on a car loan? ›

It doesn't matter whose name should come first on a car loan; it's merely a formality. The only thing that truly matters is that both you and your wife can successfully apply for the loan.

Can an executor sell car before probate? ›

A motor vehicle is a chattel and you do not have to wait until a grant of probate or letters of administration have been issued to be able to transfer a car to another owner or to sell it.

Is the cosigner responsible for the loan if the borrower dies? ›

If the borrower dies, the lender will charge the debt against the borrower's estate. The cosigner may become responsible for repaying the remaining debt after the estate is settled. For loans extended before November 20, 2018, cosigners should ask about the lender's compassionate review process.

How long does a cosigner last? ›

As a general rule, unlike so many things in life, co-signing is pretty much forever. In the case of a lease, this means that the co-signer is responsible for the lease for the duration of the agreement, whether it's a six-month lease, a yearlong lease or for some other period.

What happens when primary borrower dies? ›

Typically, debt is recouped from your estate when you die. This means that before any assets can be passed onto heirs, the executor of your estate will first use those assets to pay off your creditors.

What happens to bank account when someone dies without a will in Canada? ›

When a person dies without a will, the provincial government gets to decide who gets the money in your bank account. Provincial governments will often prioritize immediate family members or blood relatives of the deceased person, which can leave common-law partners with nothing.

Do I inherit my parents debt? ›

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.

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.

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.

Is next of kin liable for debts? ›

If no estate is left, then there's no money to pay off the debts and the debts will usually die with them. Surviving relatives won't usually be responsible for paying off any outstanding debts, unless they acted as a guarantor or are a co-signatory of the debt.

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