Car finance after death
It’s probably not the first thing that comes to mind when you’re buying a new car on finance, but it’s important to consider what may happen in the event of your death. It’s a very difficult time for those who are left behind, but there’s also the practical matter of dealing with the finances of the deceased. People often assume that the debt is written off in the event of death, but this is not the case. Here’s our guide to what happens with car finance after death.
When a loved one dies, the first thing to do with regards their outstanding car finance is to notify the lenders of their death. This will prevent them from contacting you to remind you of payments, which can be very distressing, and will also give you the opportunity to ask how much is yet to be paid. You’ll also likely be given some sort of grace period to allow for you to sort through their estate and arrange repayments.
Who is responsible for the debt?
The nature of the finance agreement dictates who is responsible for the debt. If car finance was taken out with a guarantor, then the debt would automatically become the responsibility of the guarantor. Similarly, if a joint loan was taken out, then in the event of one of their deaths, the other person would assume responsibility for continuing repayments.
In virtually all other cases, the debt will become part of the deceased’s estate, and the executor, usually a close relative, will be responsible for settling debts and taking care of their general finances.
How is the debt settled?
The manner in which the debt is to be settled depends on the type of car finance that was agreed.
Personal Contract Purchase and Hire Purchase
With Personal Contract Purchase (PCP) or a Hire Purchase (HP) car finance, the car does not belong to the borrower until the end of the agreement. Therefore, if someone dies before fully paying off the agreement, the car is still technically owned by the lender.
What usually happens in this scenario is the lender takes the car back and sells it privately. The amount of money made in the sale is then put towards your repayments and deducted from the amount still owed. In some cases, the car will sell for a higher amount than is owed, in which case the debt is repaid and there is nothing left to be done. However, this is unlikely, and you will often be required to pay the remaining debt. In most cases, this will come from the estate of the deceased.
Alternatively, you may choose to voluntarily terminate the deceased’s finance agreement early. A voluntary termination will require you to pay 50% of the total amount payable and return the car to the lender. If the deceased has not yet reached the 50% mark, then the rest of the 50% must be paid off, usually from their estate, in order for a voluntary termination to take place. Once 50% is paid and the car is returned, the finance agreement is over a nothing more is owed.
If your car loan is unsecured, i.e. you’ve offered no form of collateral as security, then the car is technically the property of the deceased’s estate. In cases where the estate is minimal, many lenders will write off an unsecured loan, leaving the executors of the estate to deal with the car as they see fit. In cases where the deceased leaves behind a sizable estate, then the lender may choose to pursue repayments. In this instance, it’s usually easier for the next of kin to simply pay off the debt instead to avoid any strife.
A lease agreement or Personal Contract Hire (PCH) is essentially an extended rental, whereby the borrower uses the car for the agreed time and pays a monthly fee. At the end of the agreement, the car is returned to the lender. If, however, the borrower dies before the end of the lease agreement, there may be a fee to be paid for early termination of the agreement. The early termination fee will usually be paid out of the estate by the executors.
What happens if you can’t afford to pay?
It’s the most unfortunate of situations, but sometimes, the deceased’s estate may not cover the cost of settling their loan agreement. If this is the case, it’s best to speak with the lenders about other arrangements. You may find that, under the circumstances, they’d be willing to take less money than was originally agreed and assume ownership of the car. We cannot speak for all lenders, but we recommend having an open conversation with them and possibly even consulting legal advice too.
In situations like these, it’s often preferable to settle outstanding debts as quickly as possible. The death of a loved one is always taxing, and financial burdens will only add to the stress. It’s always best to speak to the lenders as soon as possible (within reason) to discuss the terms of the existing car finance to be paid. For more information on car finance after death, or any area of car finance for that matter, then get in touch with our friendly team today. We’re always happy to help.