But your financial obligations have not changed. If you have a car loan and are divorcing, what happens to the loan?
Much depends on the form of that loan.
Divorce and car loans
How divorce impacts a car loan, and debt in general, depends on how you manage the loan. If the loan is in joint names, you are both liable for repayment. If the loan is in one name or the other, that named individual is responsible for repayment.
If you have a joint car loan, you have options but they depend on whether you can settle everything between you amicably or not.
Sell the car and repay the loan – Selling the car to repay the loan means a clean slate for both of you. You can then either buy a car with any equity you walk away with or apply for a new car loan in your name alone.
Refinance the car loan – If one of you agrees to take the car, you can purchase your spouse’s share with a new loan in your name.
Let the court decide – This is the least palatable option and usually the least satisfying. If you are not on good terms with your spouse or cannot agree on how to handle the car loan, it can form part of the divorce proceedings.
If you decide to refinance or go to court, we recommend discussing it with your lender beforehand. Even if it’s to warn them that your circumstances are changing and that you may be paying the loan off early.
This builds goodwill with your lender which could save a lot of hassle when it comes to refinancing or a missed payment.
Pay the car loan even if you don’t want to
Nothing impacts your credit score like a missed payment. If you cannot work things out amicably, you should do whatever you can to make sure debts are paid until your lawyer sorts everything out.
Even though the debt may be in joint names and you may not be using the car, yours is one of those names.
While you have a lot to deal with already, you absolutely have to make sure all debts are paid. That conversation with the lender will help if you miss a payment but your credit may still be impacted.
Do what you can while you can, or at least until the divorce is settled. That way you’ll at least come out the other side with your credit score intact.