Joint Auto Loans and Repossession
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 headaches for both of you.
Joint Auto Loans and Vehicle Trade-In
A joint auto loan is when two borrowers, called co-borrowers, share responsibility for an auto loan and the vehicle itself. Co-borrowers are also responsible for maintaining the vehicle, paying insurance and repaying the loan. Both parties also have their names inscribed on the title of the vehicle.
Often the co-borrowers are married couples or life partners. However, just because a couple separates and they have a joint auto loan doesn’t mean a co-borrower is off the hook. If both names remain on the auto loan agreement and vehicle title, both are responsible for the loan, whether they are married or together. If your co-borrower has the car, but your name is still on the contract and it’s repossessed, the lender could still ask you to pay the loan.
If the vehicle is repossessed, both parties suffer consequences which may include:
- Damage to credit ratings
- Liability for any deficit balance after auction
- Responsible for paying storage and retrieval fees that accrue
- May struggle to get a car loan for about 12 months
If you and your co-borrower have an agreement where only one of you is responsible for monthly payments, this 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: both co-borrowers must do everything to avoid default and repossession. Not only does this mean losing the vehicle, but it can also mean that you can both be sued for the loan balance after a repossession.
Damage and headaches after a car repo
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 bigger drop in points than a borrower with average or poor credit.
The exact number of points you could lose after a repo varies a lot, but it can be as high as 100 points (or more!). Also, most lenders cannot work with borrowers whose repossession is less than a year old. After a year, however, subprime lenders may be able to help a borrower who has already been repoed.
And don’t forget a possible deficiency balance! Just because the lender got the car back doesn’t mean you no longer owe the loan balance. Most lenders prepare the repossessed vehicle for auction and the sale proceeds are applied to your remaining balance. If there is a balance left after the auction, you are responsible for it – this is the deficit balance. Any other fees such as storage fees and recovery company fees are also usually rolled into this total.
For co-borrowers, you are both responsible for the deficient balance if there is one, and you both suffer the damages of repossession on your credit reports.
Remove a co-borrower from a joint car loan
Since the co-borrower shares the rights to the vehicle under a joint car loan, both must agree to any changes to the loan agreement or the sale of the car. If either of you can no longer handle this responsibility, it may be better to try to remove the co-borrower from the loan rather than losing the vehicle by 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 remove 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 be eligible for refinancing.
If refinancing is not an option, selling the vehicle and paying off the loan can remove both your names from the contract and the title. Most joint auto loans require both borrowers to sign the title, so both of you will likely be needed when selling.
Another option is to repay the loan naturally in monthly installments or in a lump sum. However, unless you refinance or sell the car, both borrowers have rights to the vehicle, because repaying the loan does not remove the co-borrowers’ names from the title – it simply terminates the loan.
Many borrowers seek the help of a co-borrower to help them obtain an auto loan. But not everyone can afford a solidarity car loan, and some borrowers prefer to go it alone. It’s not always easy to go it alone if you have less than perfect credit, so we want to give you a hand.
Here has Auto Express Credit, we connect borrowers with specialist financing dealers who are equipped to handle many difficult credit situations. We’ll find a dealership in your area that has bad credit loan resources after you complete our quick and free auto loan application form.