If you are recently divorced, an auto loan may not be a priority for you. But, you must take care of it because it can damage your credit score forever.
Divorce is not only emotionally difficult for you but it is also difficult for your financial condition. How?
When a marriage ends, individuals split assets and go separate ways. But, what happens to liabilities such as an auto loan?
In an ideal world, both the individuals assume the responsibility of the debts they created and part ways. Unfortunately, the reality is different. So, take care of debts after a divorce.
The Legal Liability of an Auto Loan
Do not believe that just because the divorce agreement holds your former spouse responsible for the auto loan, he/she will make regular payments. It is plausible that he/she may not make payments.
You must remember that the divorce agreement is separate from your loan contract. Lenders do not give importance to the divorce agreement. Your former spouse may be responsible for the loan in the eyes of a court. But, if you applied for a joint auto loan, lenders will hold you accountable for the loan as well.
How to manage an Auto Loan after Divorce?
It is important to remember that your marriage may be history, but a loan will continue to affect your present and future. Here’s how you can manage your auto loan and save your credit score from plummeting.
1. Get rid of the Loan
After a divorce, the best way to manage an auto loan is to get rid of it. If your former spouse is responsible for making payments, the loan should be in his/her name only.
But, remember that no lender will remove your name from the loan contract because of your changed marital status. So, your former spouse will have to refinance the loan and complete the loan process individually.
2. Get rid of the Car
If you are worried about refinancing the loan, you can sell the car and pay off the lender. It is possible that an upside down loan situation may force you to pay money to the lender, but it is important to understand that a loss today is better than constant tension forever.
3. Make sure the Lender gets paid
If your former spouse is responsible for the loan and both of you decide against selling the car, you will have to make sure that he/she makes the payments regularly.
If your former spouse doesn’t make payments, contact your attorney. It is possible that you will have to make a couple of payments to avoid any negative impact on your credit score. So, keep aside a part of your income for it.
Taking care of your auto loan might be the last thing on your mind. But, it is important to understand that your marriage is over and not your auto loan. If you don’t manage it effectively, you may ruin your credit score forever.
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