App version: 0.1.0

Refinancing a Car After a Divorce

Refinancing a Car After a Divorce
Austin Kilham
Austin KilhamUpdated June 8, 2023
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
If you and your ex-spouse jointly took out a car loan, you can refinance the loan in your own name if you’re keeping the car. When refinancing a car after divorce, you get a new loan to replace and pay off the old loan. During the process, you can remove your ex-spouse from the loan agreement. Not sure how to refinance a car after a divorce? This step-by-step guide will walk you through it.  

Steps for Refinancing a Car After a Divorce

To deal with a car loan after a divorce, follow these six strategies for refinancing your vehicle.

1. Gather Records and Review Your Credit Score

Start by compiling information about your vehicle and current car loan. You’ll need the make and model of your car, the mileage, and the vehicle identification number (VIN).In addition, you’ll also need a copy of your car loan agreement, the remaining balance on the loan, and your divorce decree. It’s also helpful to have on-hand documentation of your employment and income. After you’ve gathered the pertinent documents, take some time to check your credit score. Your ability to qualify for a loan, and the interest rate lenders offer you, are largely based on your credit history. A higher score demonstrates that you can responsibly manage and repay debt, and a lender is more likely to give you a lower interest rate. If your score is lower, you may have a more difficult time qualifying for a loan. If you do qualify, you might be offered higher interest rates. Check out the minimum credit score needed for refinance, and see how your score compares.You can work at strengthening your credit by paying bills on time and paying down the existing debts you owe. Also, review your credit report to make sure there are no mistakes on it that could be negatively impacting your score. You can get a free copy of your report from the three major credit bureaus or from AnnualReport.com. If you find any errors, report them to the credit bureaus right away.  

2. Evaluate Your Options with a Lender

When refinancing a car after divorce, not only can you remove your ex-spouse’s name from the auto loan, you may also be able to modify your loan term and interest rate. For instance, if your financial situation has improved or interest rates have dropped since you took out the original loan, you might be able to refinance a car loan after divorce at a lower interest rate. You may also want to shorten your loan term, which could lower the interest rate on the loan. However, a shorter term means your monthly payments will be bigger. Making the loan term longer could lower your monthly payments, but you’ll end up paying more interest over the life of the loan. Explore your options. Shop around with various lenders to find one that offers the best interest rates and terms for your situation. Using an auto loan refinancing calculator can help you determine how much you might save. Recommended: Guide to Car Loan Interest Rates

3. Get Permission From Your Ex-Spouse

Even though you’re divorced, if your ex’s name is on the original car loan, you need their permission to refinance the car. This may already have been hashed out in your divorce proceedings as part of the settlement. But if not, your former spouse will need to verify in writing that they approve the refinance and give up their claim to the vehicle. 

4. Document Spousal Support

Your lender will want to know that you can make the car payments as the sole borrower when you refinance. They’ll ask for your employment and income information, and you’ll likely need to provide tax returns and W-2s. You should also include documentation of any spousal support you’re getting in the divorce, including child support. This is considered part of your income. 

5. Review Loan Terms Carefully

Once you get an offer to refinance a car loan after divorce, read the loan terms carefully. Make sure the monthly car payments are affordable and double check the interest rate you’re getting. Also, look for any fees you may be charged, such as an application fee. Ask the lender to waive the fees, or if that’s not an option, try to negotiate them down. 

6. Change the Car Title to Your Name Only

The final step in how to refinance a car after divorce is to transfer the title so it’s in your name alone. You can do this once you’ve accepted the loan and signed the agreement paperwork. Each state has a different procedure for transferring car ownership.  For example, the law in your state may require that both spouses on the original title need to sign off on the title change. Be sure to research the rules and regulations of your state and follow them carefully.Recommended: Why Refinance a Car? 4 Reasons to Refinance

Alternatives to Refinancing

If you choose not to refinance, there are a couple of other ways to remove your name or an ex-spouse’s name from a car loan after divorce.First, the two of you could decide to pay off the loan. If you do that, once the loan is fully repaid, one of you can sign the car title over to the other. Or, you might choose to sell the car. Ideally, the sale of the vehicle would result in enough money to pay off the balance of the loan. If it doesn’t, you and your ex may have to come up with the difference out of pocket. Once the car is sold and your old loan repaid, you and your ex can sign over the car title to the new buyer and it will then be in his or her name. 

The Takeaway

If you and your ex-spouse are co-borrowers on an auto loan, you can remove one party’s name from the loan. That way, neither of you will have to worry about whether the other is making the loan payments on time and if your credit could be damaged if they don’t. One of the easiest ways to do this is through refinancing a car after divorce. That replaces your old car loan with a new one and gives you the opportunity to retitle the vehicle in your name alone.Another benefit of refinancing is that it may also help you get better rates and terms on a car loan. Lantern can help you quickly and conveniently find the best refinancing options for your needs. In our online marketplace, you can get offers from multiple lenders at once to choose the one that’s best for you.Find and compare auto loan refinancing rates with Lantern.

Frequently Asked Questions

Is it possible to refinance a car after divorce?
How long can it take to refinance a car?
What are the steps for refinancing after divorce?
Photo credit: iStock/oatawa
LCAU0323003

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
Share this article: