My co-borrower lost his job and can’t pay for his car

During the coronavirus pandemic, many Americans are wondering what to do if they can’t afford their car, and what that means for loans with co-borrowers. With so many borrowers filing for unemployment and others laid off or made redundant, many lenders are working with people to help everyone through this difficult time.

Co-borrowers and your income

When it comes to co-borrowers, they are almost always spouses or domestic partners. The lender combines the income of both borrowers to meet the requirements during the approval process, since a car loan with a co-borrower it is a spouse means that their income is mixed or combined. Once the car loan is approved, both borrowers are equally responsible for it.

This means that if one borrower provided most of the household income and lost that income, both borrowers are still responsible for car payments. Both also risk serious damage to their credit if there are late or missed payments, default and/or repossession.

However, all hope is not lost. There are a few options to explore to avoid a default – especially given the current circumstances brought on by the coronavirus.

Talk to your lender!

If you are a co-borrower and were afraid to contact the lender, you shouldn’t be. Chances are your lender doesn’t want you to default either.

Lenders who have to go ahead with a repossession usually lose money on most of these car loans. Once a car is repossessed, the lender must go through the expensive and harrowing process of recovering the vehicle, storing it, and then auctioning it off to recoup at least a portion of the loan balance. Cars sold at auction do not normally receive the full amount owed on the vehicle.

In addition, the costs associated with a repossession are your responsibility and that of the co-borrower. You must pay the lender the cost of the collection company, the storage facility, the auction fees, and any remaining balance on your loan (known as a deficiency balance).

If these are not paid, the full amount is usually sent to collections, which further hurts both of your credit scores. Additionally, a repo and other associated negative marks can stay on your credit reports for up to seven years, which in some cases can reduce your ability to get another car loan for at least a year.

Most of the time, everyone loses when it comes to a default on an auto loan. So talk to your lender. Many are voluntarily stepping in and working with their borrowers during the pandemic. Many of the automaker’s finance divisions offer deferral plans for auto loans as well as leases, and some are adjusting payment due dates to better suit their borrowers’ schedules. You will not know if you are entitled to help unless you ask for it.

You and your co-borrower should let your lender know if you’re worried about falling behind on your payments as soon as possible. The sooner you act and the more you communicate with your lender, the better your chances of finding a solution before things go wrong with your auto loan.

Other options for co-borrowers

If your lender can’t do anything for you right now, you and your co-borrower may be able to consider refinancing your car loan. This can be a great option for those who don’t want to default or lose their current vehicle. During the refinance process, you can also remove a co-borrower or co-signer from an auto loan – if you can qualify on your own.

Almost exclusively, refinance a car loan is made to make the monthly payment more affordable. There are a few requirements that must be met before you are considered for refinancing and they vary, but generally lenders require that:

  • Your car has equity
  • You are up to date on payments
  • Your vehicle has less than 100,000 miles
  • Your car is less than 10 years old
  • Your payments have been consistent throughout the loan
  • Your credit score is good or has improved since the start of the loan

These requirements aren’t hard and fast, but most lenders typically use them for refinance approval. If you and your co-borrower are approved for refinancing, it can work in different ways.

Refinancing can lower your interest rate or extend the term of your loan, sometimes both. By simply extending the term of your loan, your monthly payment decreases, but you risk paying more interest since the loan is longer. However, if you only temporarily need relief on large car payments due to coronavirus lockdowns, you can compensate for the longer loan by making larger/additional payments in the future to help compensate additional interest charges while paying off your car loan faster.

If you and your co-borrower, or your vehicle, don’t meet the above requirements and your lender can’t help, it might be time to look for another (more affordable) car.

Find a dealer to work with

If a co-borrower is no longer able to make payments, the other co-borrower should take over. But if that’s not possible right now and refinancing isn’t in the cards, trading in your current vehicle for a more affordable one with more manageable car payments might be a good solution.

AT Auto Express Credit, we are always working hard to connect borrowers in all types of credit situations to dealerships nationwide who work with subprime lenders. To be matched with a dealer near you, simply complete our car loan application form. It’s secure, free and you can complete it right from home.

Comments are closed.