Break-up is hard to put up with, yet many people feel that separation will end their torturous lives.
Finally, they will breathe fresh air and live the way they want. However, it does not seem to be positive when you are separating from debt.
You will be responsible for debts you have taken on in your name regardless of your marital status. Thongs become complicated when you have taken on debt with your partner. For instance, a joint car loan.
You are still responsible for payments
Now you and your significant other are not living together. You will be wondering who will be responsible for settling outstanding car loans. Note that you cannot get yourself off the hook by saying that you are not using your car.
Whether you or your ex-partner is using your car, you both are responsible for paying the auto loan. This is because the contract binds you both. If any of you avoids making payments, it will affect your credit score.
This is why it is crucial to managing the debt more responsibly even after your divorce. Before you make any decisions, you should try to understand the stipulations of the divorce decree.
Since you have divorced, your decree will decide who is responsible for paying off the debt.
Tips for dealing with a joint car loan after divorce
Here are the tips that you should deal with a joint car loan:
Inform your car lender
Since you have divorced and the decree has stated that the car is your property, your ex-partner is still responsible for making payments. This is because your lender is not aware of it.
Note that if one of you makes a default on your car loan, the lender will report it to credit reference agencies, which will affect your and your ex-partner’s credit score.
You may not realize it until you apply for another loan or a debt collection agency starts chasing you.
A rule of thumb is to inform your car lender immediately about your divorce. Make sure that you tell them about court orders.
However, your lender cannot simply ask you to make payments because your divorce decree has granted you the title. Do not forget that the loan agreement has your and your ex-partner’s name. Further, your lender will now analyze your repaying capacity to determine how much you can afford to pay monthly. Until divorce, the repayment term was decided based on your financial condition.
Refinance your car loan
Even if you no longer use the car, you cannot escape making payments. Since both names are on the loan agreement, you are responsible for making payments. If any of you misses the repayment, the default will pull your credit score.
Of course, you would not like to pay off the car loan if you do not have the right to use it. Do not worry because you have the right to get your name off the loan agreement. You can do it by refinancing your car debt. Refinancing will help you finance the entire debt in your ex-partner’s name.
However, note that refinancing will require the lender to evaluate repaying capacity of your ex-partner. Your ex-spouse must prove that they can manage t pay off the debt on time. Refinancing is just a way to get your name off the loan agreement. However, your ex-partner can prove to the lender about their repaying capacity.
You should consider the following criteria to determine whether your ex-partner can afford to refinance the car debt. However, note that it generally varies by lenders, but these are common requirements:
- The current debt should be less than its market value.
- The auto loan must be at least one-year-old.
- It must have covered less than 100,000 miles.
Apart from these conditions, your ex-partner must also meet income requirements. A lender will ensure that your ex-partner can afford to make the payments.
Note that if the lender suspects that your ex will not be able to pay off the debt, you cannot get your name off the list. To get it successful, your ex-partner can see an extended loan term.
When the loan term is extended, monthly payments become lower and more manageable. However, it depends on the lender whether they would like to do so. Nobody can impose their wish on lenders regarding their policies.
Buying a new car after divorce
Finally, you have parted ways from your partner and gotten rid of your car loan. The next thing is that you will be planning to buy a car. There is no denying that your credit score may have been badly affected due to the splitting up of finances.
Of course, it can be very challenging for you to take out a car loan. Therefore, the first thing you should do is improve your credit score. You can take out credit building loans to take out a car loan at a lower interest rate.
If you need a car urgently, you can look for soft search car finance. It means a lender will run a soft credit check. Hence, no hard search footprints will be displayed on your credit report. However, these loans come with high-interest rates.
A rule of thumb says that you should calculate the estimated total cost of the loan. Do research online before you put in the loan application. Use online calculators to know how much it would cost. You can consider using car finance with a soft credit search.
However, if you think you cannot pay off the debt at such high interest, you should consider having a co-signer. This will reduce the lender’s risk, so you can get guaranteed car finance for bad credit at affordable interest rates.
A co-signer can be anyone in your family. However, note that your co-signer will be equally responsible for car payments. If you do not want to share the title with anyone, you should arrange a guarantor with a good credit score.
Note that your guarantor will be responsible for making payments if you make a default. It will pull both of your credit scores. If you are seeking a car loan with a bad credit rating with the help of a guarantor, make sure that you do not create a default, so your guarantor does not go through.
The bottom line
If you have a joint car loan and have parted way from your partner, you will have to abide by the speculation of your divorce decree. At the same time, you will have to inform your lender about it. Then the lender will revise the payment method.