What happens if your co-signer dies before your car loan is paid off?

After the death of someone close to you, the last thing that is likely to be on your mind is your auto loan or your vehicle itself. But if the deceased was your auto loan co-signer, you’ll need to understand how their death changes your situation. In such cases, you typically take on full responsibility for the loan.

What happens to a car loan if your co-signer dies?

When a person gets a car loan with a co-signer, both the primary borrower and the co-signer are responsible for making the loan payments, and both people will have the loan listed on their credit reports. Typically, the co-signer has no ownership claim on the car.

A co-signer is held financially responsible for payments should the primary borrower not keep up with the loan. If the deceased individual was the co-signer, little about your loan is likely to change.

“Usually, nothing happens. Certainly, the lender could take action if they became aware of the death, but awareness would only come if the lender tries to contact the co-signer because the loan is in danger of default,” says Mike Sullivan, a personal financial consultant with the nonprofit financial counseling agency Take Charge America.

If you’ve already defaulted on the loan before the co-signer dies, the deceased individual’s estate may be on the hook for the loan. The loan contract often includes a clause covering the death of one of the parties, such as the co-signer.

In such cases, the deceased individual’s estate may be the new co-signer. If the loan is in default, the lender could pursue repayment from the estate’s assets — and from the living borrower. The co-signer’s estate may need to liquidate assets to pay off the remaining debt.

What to do after a co-signer’s death

If you can keep up with the loan payments and do not default, you need not notify the lender of a co-signer’s death. It is usually up to the lender to find out when a co-signer dies.

But if you want to remove the deceased from the car loan, you must meet with the lender and present them with a valid death certificate. If your co-signer had better credit than you did, thus improving the loan terms and lowering your interest rate, your rates could shift.

Without a co-signer, the lender could adjust or modify the loan rates to reflect your credit.

Also, depending on which of you received the loan bills, you may need to change the address now that you are the primary account holder.

What if the primary borrower dies?

If the primary person on the car loan dies, then full responsibility for the loan automatically goes to the co-signer, who will now need to pay the debt. If you find yourself in such a situation, keep up with the payments so as not to damage your credit and talk with the lender about the next steps to take.

“It is the responsibility of the co-signer to make all payments or suffer severe credit and financial consequences,” Sullivan says.

If the car was left to the deceased’s heirs in a will, they might inherit both the vehicle and the loan. Or the heirs may get the car while you, as co-signer, must continue making payments. It depends on state law, which varies.

Until the deceased party’s estate is fully sorted out, keep making payments to protect your credit from default.

“The best advice for a borrower is to keep making timely payments. That is all that most lenders want or expect,” said Sullivan.

The bottom line

The pain of losing a friend or family member can be challenging to deal with. You may have to sort through some financial matters, especially if the deceased was a co-signer on your car loan.

If you find yourself in this situation, the first step is to be sure loan payments remain current so that your credit is not impacted.

And remember, whether the deceased was the primary person on the car loan or simply a co-signer who helped you secure the loan, you are now the one who is fully responsible for managing it.