Who Pays for a Repossession on a Joint Auto Loan?

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Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - June 14, 2021

A repossession impacts both people on a joint auto loan. According to the auto loan contract for a joint car loan, both co-borrowers are responsible for paying on the vehicle. But what about repossession? Here’s what you should know.

Who Pays for the Car?

A joint car loan is when two borrowers are equally responsible for the vehicle and its loan. It’s common for co-borrowers to make their own, separate arrangements on who’s making the actual payments, but those arrangements aren’t included in the contract. In the lender’s eyes, both co-borrowers pay for the vehicle.

While you and your co-borrower may have made separate arrangements for who submits the car payment each month, the lender can ask both/either parties to pay for a repossession. Whether you pay for the repossession fees or your co-borrower does is up to the two of you.

Repossession of Co-Owned Vehicle

If the auto loan is behind on payments, the lender can start the repossession process. Often, lenders send a notice informing the borrowers that the loan is behind and the recovery process is likely to start soon after. In some cases, lenders can repossess a car as soon as a borrower is one day late on a payment, but this depends on the language in your loan contract.

Once the recovery is successful and the vehicle is towed away, it’s typically prepared and cleaned for auction. Lenders usually sell repo’d cars to make up for the remaining loan balance. However, auction proceeds don’t always cover the entire thing. If there’s a leftover balance that still needs to be paid, it’s called a deficiency balance – and both co-borrowers on a joint car loan are responsible for it.

In addition to any leftover balance after the auction, recovery and storage fees are typically added to the overall balance, too. Lenders don’t pay for the recovery company or the storage fees and hold the borrowers responsible for it. In the case of a joint auto loan, it’s up to the two of you to hash out who pays for what, but the lender can ask either of you to pay.

What if We’re Divorced?

Auto lenders typically require that co-borrowers are married or life partners since you must prove that your incomes are shared. Co-borrowers combine their income sources to meet the income requirements of a joint auto loan.

Sometimes couples split up and make combined debts a sticky situation. If you and your spouse have a joint car loan but divorced, later on, you may have to go to court to split up assets and debt. In divorce court, an order can be made where only one of you is required to make the payments on the vehicle.

However, unless you change the terms of the loan contract, the lender can still come after either co-borrower for the loan payments or repossession fees. While the court may have ordered one spouse to make the payments, it’s a separate arrangement outside of the original loan contract, so the lender can issue collection efforts for both co-borrowers if necessary.

Additionally, the damage from the repossession, default, and missed payments, still impact both borrowers regardless if they’re together or not. If both co-borrowers remain on the contract, both feel the negative impact of repossession.

How to Get Out of a Joint Auto Loan

If you want out of a joint car loan, then refinancing is worth exploring. Refinancing is replacing the original loan contract with another one for the same vehicle – aka financing the same car again.

Most borrowers refinance to lower their interest rate to save cash on the loan or extend the loan to make their payments smaller. But refinancing also gives you the chance to remove a co-borrower from the loan contract.

If you want to keep the vehicle and remove the co-borrower, then you must qualify for the loan by yourself, or vice versa if the other borrower wants the car. Also keep in mind that refinancing lenders have restrictions on what vehicles they can refinance, such as age and mileage restrictions. Most lenders require that the car has less than 100,000 miles and be under 10 years old.

Last Resort: Trade-In to a Dealership

If you and the co-borrower are struggling to keep up with the payments, then selling the vehicle and getting enough cash to repay the entire loan term effectively gets both of you out of the loan. Selling the vehicle before the loan defaults can save both of you headache and/or arguments about who’s responsible for paying for the repossession.

Most dealerships accept trade-ins that are in good condition, but then, you may be left without a car. If selling the vehicle is what’s next for you, then let us guide you to a dealership that can assist with unique credit situations.

At CarsDirect, we’ve created a nationwide network of dealers that assist borrowers with credit challenges. To get matched to a dealership in your local area, complete our free auto loan request form and we’ll get right to work for you. There’s never an obligation to buy if you’re matched, so what are you waiting for?

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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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