Marriage and divorce are huge life events and, for better or worse, both are booming industries. Approximately 250,000 marriages take place each year in England and Wales, and over 100,000 divorces. If you’re someone who’s thinking about getting married or divorced and thinking of buying a car on finance, you may be wondering how they affect each other. Here we explain how being married affects car finance, and what’s the relationship between personal loans and divorce.
It is often the case when people get married that they create a joint account(s) with their spouse. This has several benefits, from helping with money management to increasing transparency. However, as you create a joint account with your partner, a financial link is created between you both (until that point, even while married, your finances and financial records are distinct). This link has some ramifications, especially when it comes to car finance.
Put simply, each person’s credit history affects the other person. If one person has a poor credit history, then their spouse may face some difficulty – even if they have an excellent credit history. The degree to which the credit scores of each person affect the other depends on how good/bad their respective credit histories are. A person with a glowing credit history is unlikely to be impacted much by opening a joint account with their spouse who has a mediocre credit rating. However, a person with a mediocre credit rating will be significantly impacted if their spouse has a terrible credit rating.
If you have an existing car finance agreement when you get married, then nothing changes, and you should continue to make your monthly repayments as normal. Generally speaking, your spouse will not become responsible for the loan you already have. There may be certain circumstances or certain types of loans, such as a guarantor loan, where your spouse would be legally responsible for the loan. Consult your finance agreement or the lender themselves for more details on this.
Given this information, you may decide not to create a joint account with your spouse. It’s a decision you must make amongst yourselves based on your own circumstances. You may find, for instance, that it’s advantageous not to open any joint accounts in the interest of securing loans in the future. If one of you have bad credit and the other has excellent credit, then it may be worthwhile to keep your finances separate and have the person with good credit apply for any loans you need, such as when buying a car on finance.
It’s important to note that the aforementioned financial link created between you by the opening of a joint account ends as soon as the joint account is closed. This leads us to the next topic.
Divorce is rarely ever easy, and this is true when talking about car finance that is shared between former spouses.
Essentially, the divorce has no effect on the finance agreement. Therefore, if a loan for a car (that you both used) was taken out in just one person’s name, then the repayments are the responsibility of that person. Even if the spouse agrees to continue paying for half of it, if they miss a payment, the person whose name is on the contract is liable. In this case, the liable person would suffer the consequences of their former spouse missing repayments, which could be detrimental to their credit score and ability to secure credit in the future.
If you’re in a situation where you both applied for a car finance loan and now your spouse is keeping the car, you may wish to remove your name from the finance agreement. This will mean you are no longer liable for the repayments. It’s an ideal situation, but it may not be as straightforward as you’d hope. In the case of a loan taken out together, it’s likely that you were granted that loan on the basis of your joint income and credit histories. A lender may not allow you to take your name off of the agreement because doing so may render them less likely to receive their repayments (your former spouse may find it difficult to pay off the loan on their own). You may be able to alter the terms of the loan, such as reducing the monthly repayment amount and extending the term time, in order to make it more manageable for your former spouse to pay off themselves.
Another option is to refinance your joint loan(s) and replace them with personal loans for which only you are responsible. The difficulty here is similar to that stated above – the initial loan may have been granted based on your joint income and credit history with your spouse, and you may struggle to get accepted on your own merit. If this is the case, you may need to offer some kind of collateral or find a guarantor.
You also have the option of just selling the car and buying another as a way of getting out of a joint finance agreement. This is a plausible option if you have equity in the car (the car is worth more than you owe the lender) since you can use the money to fully pay off the remainder of the loan, and use the rest towards a new car. However, if you’re in negative equity (where you owe more than the car’s value), which is often the case with PCP loans, then it’s unlikely to be feasible.
Whatever your marital status, it’s always advisable to stay on top of your loans. Actively tracking your incomings and outgoings will keep you in control and keep you on top of your loan repayments. This is far better than being hit with a surprise bill or having your car repossessed because you were unaware of the financial ramifications of your marriage or divorce. For more information on managing your finance repayments, get in touch with us today.View more from The Car Finance Hub