A joint auto loan is when two people are equally responsible for the vehicle and the loan. If this vehicle is repossessed, it could mean a lot of headache for both of you.
Joint auto loans and vehicle repossession
A joint car loan is when two borrowers, called co-borrowers, share the responsibility for a car loan and the vehicle itself. Co-borrowers are also responsible for vehicle maintenance, insurance payment, and loan repayments. Both parties also have their names inscribed on the vehicle title.
Often the co-borrowers are married couples or life partners. However, just because a couple is breaking up and they have a joint car loan does not mean that a co-borrower is off the hook. If both names remain on the car loan agreement and the vehicle title, both are responsible for the loan whether they are married or not. If your co-borrower owns the car, but your name is still on the contract and it is repossessed, the lender may still ask you to pay off the loan.
If the vehicle is repossessed, both parties suffer consequences which may include:
- Damage to credit scores
- Responsibility for any deficit balance after auction
- Responsible for paying the accrued storage and retrieval costs
- May struggle to get a car loan for about 12 months
If you and your co-borrower have an arrangement where only one of you is responsible for the monthly payments, it has no effect on the loan. In a co-borrower situation, you are both responsible for everything related to the loan and the car as far as the lender is concerned.
In other words: the two co-borrowers must do everything to avoid default and repossession. Not only does this mean losing the vehicle, it can also mean that you can both be sued for the loan balance after repossession.
Damage and headaches after a car drop-off
A repossession can cause significant damage to your credit reports and lower your credit score. If your credit score has always been excellent, you may experience a greater drop in points than a borrower with average or poor credit.
The exact number of points you could lose after repoing varies a lot, but it can go up to 100 points (or more!). Additionally, most lenders cannot work with borrowers who have repossessed their credit reports for less than a year. After one year, however, sub-repo lenders may be able to help a borrower who has already taken a repo.
And don’t forget a possible deficit! Just because the lender took over the car doesn’t mean you no longer owe the loan balance. Most lenders prepare the repossessed vehicle for auction, and the proceeds are applied to your remaining balance. If there is any balance left after the auction, you are responsible for it – this is the deficit balance. All other charges such as storage charges and recovery company charges are usually included in this total as well.
For co-borrowers, you are both responsible for the deficit balance if there is one, and you both suffer repossession damage on your credit reports.
Withdraw a co-borrower from a joint auto loan
Since the co-borrower shares the rights to the vehicle under a joint car loan, the two must agree to any change in the loan agreement or a sale of the car. If either of you can no longer take on this responsibility, you may be better off trying to remove the co-borrower from the loan rather than losing the vehicle in the event of default.
One of the easiest ways to remove a co-borrower (or co-signer) is to refinance the auto loan. Refinancing consists of replacing the old contract with a new one. If you want to withdraw your co-borrower but keep the vehicle, this is a good avenue to explore. Keep in mind that you still need permission from your co-borrowers to do this, and you must qualify for refinancing.
If refinancing is not an option, selling the vehicle and paying off the loan may remove both of your names from the contract and from the title. Most joint auto loans require both borrowers to sign the title, so both of you will likely be needed in the sale.
Another option is to repay the loan naturally in monthly installments or in a single payment. However, unless you refinance or sell the car, both borrowers have rights to the vehicle because repayment of the loan does not remove the names of the co-borrowers from the title – it simply terminates the loan.
At the next loan!
Many borrowers hire a co-borrower to help them get a car loan. But not everyone has the resources for a common auto loan, and some borrowers prefer to go it alone. It’s not always easy to go it alone if your credit isn’t perfect. So we want to give you a hand.
Here has Auto Express Credit, we have connected borrowers with special financing dealers equipped to handle many difficult credit situations. We will search for a dealership in your area that has bad credit loan resources after you complete our Fast and Free Auto Loan Application Form.