Divorce brings a number of financial headaches, and refinancing a car in your own name might be one of these. A refi alerts the lender that you're now solely responsible for making the payments. Depending on how your income and credit rating compare to what you presented when you applied for the loan, this could lead to an increased or decreased payment. If you don't start the process until the divorce is completed, you may find yourself in a precarious position.
You may not be married anymore, but that doesn't mean you won't need some cooperation to refinance the vehicle. If both your names are on the original auto loan, you'll need your ex-spouse's permission to refinance. Sometimes that occurs through the divorce proceedings and is agreed to as part of the settlement or decreed by the court. If that's not the case, you'll need your spouse to agree in writing that he approves the refinance and abandons his claim to the property.
Document Spousal Support
When refinancing an auto loan under your own name, the lender will want to see evidence that you, and you alone, will be able to make the payments. You'll be going through the traditional loan application process and providing evidence of income and liabilities. If you're receiving spousal support or child support in the divorce, you're permitted to include that when you declare your income. The lender will evaluate that based on the dollar amount and likelihood that it will be received. If there's a written agreement such as a court decree and the paying spouse has a high credit rating, that helps. On the other hand, if your spousal support expires before the loan term ends, that may lessen the impact.
Credit May Limit Options
The lender is under no obligation to refinance the loan under only your name. If your credit history is thin or spotty, you may have problems getting the issuer to alter the loan. In addition, your refinancing options differ depending on the loan balance and the value of the car. If you're near the end of the loan term, your car may be worth more than the loan amount, which reduces the lender's risk considerably. On the other hand, if you're taking possession of a brand-new luxury car just a couple of months off the lot, the lender will view your application with more scrutiny.
You may need to get creative to refinance your car after the divorce. Relying on a single income and credit score could leave you paying a higher interest rate. To keep your payments more affordable, the lender might require you to spread the payments out over a longer period -- perhaps by writing a 60-month loan for a car that's already a year or two old. This reduces your monthly bill but can mean you'll still owe on the car after its useful life has ended and you're ready for a new one.
Change the Title
When you refinance, make sure your name is the only one on the title. Required forms depend on your state, but your ex-spouse will need to agree in writing to remove her name from the title and transfer it solely to you. Once that happens and the refinancing is complete, the car -- and its obligations -- are entirely yours.