The death of a loved one is a tough thing to deal with. Apart from the emotional turmoil, there are many legalities that the immediate family or nominee of the departed has to deal with.
Apart from the certificates and transfer of various deeds, family and friends of the departed will also need to take care of payments. For example, if the recently demised was an applicant for a car loan, can the payments on the car loan stop? The answer is no. But there is a common misconception that if the applicant of a car loan passes away, then the relationship with the lender of the loan is terminated.
The burden of the car loan interest falls on the immediate family, legal nominee, or co-applicant of the loan. So, what is the protocol in such a scenario?
Car loan proceedings upon the demise of the applicant
Car loan EMIs are not forgiven upon the applicant’s death. The lender can cover the debt by selling off something from the borrower’s assets. If the applicant’s assets are not enough to cover the debt, the person inheriting the vehicle is required to decide whether she wants the car.
If the inheritor wants to keep the car, she takes over the car loan interest payments and maintains its possession. Alternatively, the car is repossessed by the lender.
There are two ways of approaching the scenario for the spouse or legal heir of the car; here they are:
- Stop car loan repayments and get the car confiscated
- Continue car loan repayments and own the car
Stop Repayments on the Car Loan
Even when you cannot afford to repay the car loan amount, as a spouse or legal heir, you have the responsibility towards the car. If you decide that the remaining amount on the car loan should not be repaid, then you can stop the car loan interest payments. You may feel that the car loan rate is high or that you do not need a car.
As soon as you stop the repayments, the lender can confiscate the car and auction it to recover the loan. They are allowed to do so because the entire car loan EMI payment is not completed.
But you must avoid this situation as it affects your credit score in a major way if you are a co-signer. Also, if you can avoid confiscation of the car, you may get back some of the investment already made towards the car by selling it yourself. If the lender auctions it, you won’t be getting anything.
Again, if you are not a co-signer or legal heir, you are not liable for the car loan after the applicant’s death. Non-spouse family members and non-co-signers on loans can’t be forced to repay the car loan interest by the lender. In such cases, the car is sold to pay off the loan.
Continue Repayments on the Car Loan
If you decide that you are OK with the car loan rates or that you need a car, then you can keep ownership of the vehicle by keeping on making payments. However, you will need to inform the lender that you, not the original applicant, will make the repayments.
Once you inform the lender that the applicant has passed away, the car’s ownership will be transferred to your name along with the loan. So, if you do wish to continue repaying the car loan EMIs, check the amount that you will owe each month by using the car loan EMI calculator.
You are even eligible to get a car loan tax exemption if you are self-employed and using the car for business purposes.
What happens in the case of unsecured car loans
In the case of unsecured car loans, there are no belongings attached to the loan. So, the lender can’t take over any property after the loan applicant has died. The lender cannot force the family members or even legal heirs to repay the debt.
A legal heir becomes responsible to the lender when she inherits the deceased’s assets. If no properties are inherited, the surviving children or spouse cannot pay car loan interest payments to the lender.
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