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How to Refinance a Car Before Divorce


Divorce and financial stress in marriage have never been uncommon, but in today's economy, they seem more prevalent than ever.

If you are considering divorce, you may have considered refinancing some of your joint loans, such as an auto loan, to make the transition easier. But what are the benefits of refinancing, and what is involved? The decision to refinance depends on a number of factors, including how well you and your spouse are able to work together through your divorce.

If you are in an unhappy marriage, but unsure if filing for divorce is right for you, an attorney might be able to help. A divorce lawyer could give you valuable insight into financial issues of divorce, and what your best options may be.

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Dividing Assets and Debts in Divorce

Refinancing before a divorce may be helpful because it can simplify your financial situation. If two married individuals are both on the loan for a vehicle, then the bank has assumed that both incomes will be contributing to the payments for the car. If you simply remove one borrower from the equation, the reduction of income could increase the risk of the loan for the bank. As with any financial obligation, it may become difficult to keep up with loan payments once your household income has been essentially cut in half.

That leaves your choices as either remaining on the loan with your ex-spouse until the vehicle is paid off, or refinancing your loan so only one of you will be held accountable for it. If you choose to keep the original loan, then you and your spouse will likely be held accountable to making timely payments - and the lender could take action against both if payments are missed.

There is a down side to refinancing. If you originally finance your car with two incomes, your rates will typically be lower than the rate you would have gotten for a single income. The rate is a reflection of the lender's confidence in your ability to make the payments. If you refinance, depending on how much of the original loan amount remains, it is possible that the bank might find the risk too great for just one income.

That means that the bank has the option to refuse your attempt to refinance. This is because two people made the commitment on the original loan, and the bank isn't under an obligation to release either from the payments.

Whatever you decide to do, it is important to think about the long-term ramifications of your decision to refinance or to not. One of the keys is to understand how much extra it could cost you if you fight to own the car. By owning the car, often times you will have to refinance it into your name.

This refinancing, as stated above, might cost you a significant amount of extra money per month. You may be capable of refinancing, and, thus, owning the car. But if you don't take the time to realize how much the new payments will be, and how much less your net income will be, you might find yourself paying more for your car than you ever dreamed.