Getting your ex off a car loan
Parting ways with your spouse also means parting ways with any loans you hold jointly. Despite what your divorce decree says (for example, it may state that you will take ownership of the car), unless you settle up directly with the lender, your ex is still partially responsible for the loan. How do you remove your ex’s name from any car loan you may have together? Here are some steps to follow:
1. Refinance the loan.
If you've been awarded the car in your divorce, go to your lender and see if you can work out a new deal (aka, a “refinance”) for paying for the car—one that doesn't involve your ex-spouse.
The loan company will look at your income and your credit history to make sure you can afford the payments without your ex (if you can’t you can ask someone to cosign for you).
You may actually find that your credit history alone is better than it was with your spouse, which means you may qualify for a lower interest rate, and thus, lower payments.
2. Take out a personal loan.
Let’s say you don’t make enough to make the loan payments by yourself and the financing company won’t allow you to refinance. Now what?
Go to a bank and see about obtaining a personal loan (again, you will have to show proof that you can make those payments, but the criterion may be less stringent and the monthly payments more affordable). If you get a personal loan you can use the money to pay off the car loan, thereby ridding yourself—and you ex—of it.
3. Ask for a “novation” of the loan.
Novation is a technical term for essentially subbing out your old loan for a new one that releases your ex of any debt responsibility. This is a viable option if you were awarded the vehicle in your divorce settlement.
To secure a novation you need to contact your lender and request that the loan be transferred into your name. You may also be able to renegotiate the terms of the loan with your lender. For example, your may push for a lower interest rate or a change in the length of the loan, all of which will change your monthly payment.
4. Sell the car.
Another option is to sell the car and take the proceeds to pay off the loan, dividing any money that is left with your ex. This may not be ideal if you want and need your car, but it does serve the purpose of getting your ex off the loan.
Last but not least, be careful with titles. Just because you get your ex off the title does not mean he/she is not still on the loan agreement. The loan is a contract you made with the lender—it has nothing to do with the title. If you miss or are late with the payments, your ex’s credit rating will suffer along with your own.