What are the potential pitfalls of a long-term car loan?

May 25, 2018 11:43 AM

I have a car I don't currently need. I want to loan it to my sister for the long term, but I'd prefer to retain ownership in case my circumstances change and I need it back at some point in the future. What are the potential downsides of being the legal owner of a car while someone else is the primary driver?

I own an older car, worth about $3000. I do most of my commuting by bike or bus, so my partner and I only use the car a few times a week for grocery shopping and the occasional camping trip. Recently my partner acquired a much nicer, newer car. We barely need one car and we definitely don't need two, so I'd like to let my sister use my car long-term, but I'd prefer to retain title to it. The plan is for my sister to be primarily responsible for the car--she'd pay for insurance and at least some maintenance, be the primary driver, and keep it at her residence. (She doesn't currently have a car, and like me would probably only use it a few times a week.) What are the potential pitfalls, legal or interpersonal, of having someone else primarily responsible for the car while I'm still the legal owner? What are the best practices for doing this?

posted by fermion to Law & Government (12 answers total)

Your liability insurance still covers the car, so you would need to add your sister as an added driver and you would be responsible for the increases in your premiums if she was at fault in an accident while driving your car.
posted by hwyengr at 11:51 AM on May 25, 2018 [2 favorites]

I don't know about the laws in your state. But in Arizona, parking tickets are attached to the car, not the driver like a traffic ticket. So if she were to get a parking ticket, you're ultimately responsible, even if you didn't know about it. The city government here will send people to collection agencies over parking tickets. If your state puts the tickets on the car's record instead of the driver's, that's one potential pitfall.
posted by azpenguin at 12:02 PM on May 25, 2018 [3 favorites]

if she gets into an accident then you may liable. My stepfather sold a car, the person who bought it never changed the title, that person drove drunk and killed someone in a head on collision. My stepfather received a lot of legal letters from prosecuting attorneys and insurance companies and detectives implying that he was implicated in the murder. He was able to show proof of sale to make the whole thing go away, but for a couple of weeks he was on the phone A LOT with a lot of people who could have ruined his life forever.

Put the title in her name, give her the car, do not hang this risk over your head for a 3 thousand dollar car.
posted by nikaspark at 12:11 PM on May 25, 2018 [25 favorites]

I would be concerned more about the interpersonal friction.

Rhetorical question: Why not just gift the car to sis and be done with it (or legally sell it for the usual and customary $1)? Then she can do whatever she wants to do and it is not your problem and there is no sword of Damocles hanging over the relationship where she feels you will have a cow if she spilled something on the seats or didn't wash it often enough or whatever.

If you are in a position where you can afford to let someone more or less permanently borrow a $3000 item that you are not using, I think giving it away is a cheap price to pay for cutting out potential relationship drama and legal headaches. And if you can't afford to give her a $3000 gift, then I feel like you can't afford to lend it to her either. If the money matters, then just sell the car.

To my mind, this only makes sense if gifting it is problematic for other reasons, such as Sis owes creditors all kinds of money and you are worried about it being taken from her in court. In a situation like that, you let her know you would gift it but that has this problem that it could be taken from her, so you let her borrow it to protect her from her creditors. That has much, much less interpersonal downside because you truly are doing her a big favor.

Old sage advice for protecting personal relationships: "Neither a borrower nor a lender be. For loan oft loses both itself and friend." (though that was specifically about money, I think it generalizes to something worth a nice chunk of change as well)
posted by DoreenMichele at 12:14 PM on May 25, 2018 [20 favorites]

What are the best practices for doing this?

You sell the car to her, as she will be the primary user and owner of the car.

But you're not being clear as to why you want to keep the car legally in your name, which is problematic for all sorts of reasons that others have mentioned. If you must keep the title in your name, and if you're really close, and financial intertwining don't stress your family dynamics out (they do with some, but not all families), you could take the middle ground and get a new title with both of you on it. You each would 'own' the car at that point, and give you maximum flexibility in who operates and is the primary on it.

Insurance companies love fucking with people who are actual primary drivers, but don't actually own the cars. It is sometimes an extra level of stress if things go sideways.
posted by furnace.heart at 12:47 PM on May 25, 2018 [2 favorites]

Not downsides, but: I loaned a similar-value car to friends for about a year while I lived overseas (I wasn't sure how long I'd be gone when I left). It worked fine. I borrowed it back once while I was visiting and sold it to them after I moved back and got settled.

Call the insurance company and get their go-ahead and make sure that you're clear on who pays for various levels of maintenance. My insurance was unconcerned, but the friends also didn't wreck the car or stick me with parking tickets, so I didn't have to test it.
posted by momus_window at 2:22 PM on May 25, 2018

Response by poster: But you're not being clear as to why you want to keep the car legally in your name, which is problematic for all sorts of reasons that others have mentioned.

Well, if six months down the line I need the car back for whatever reason, it feels okay to say "hey, Sis, I need my car back" but it doesn't feel okay to say "I gifted you this car but now I need you to give it back to me."

I dunno, maybe I'm trying to have my car and eat it too.
posted by fermion at 2:26 PM on May 25, 2018 [2 favorites]

So my family has done this many times. As long as everyone is carrying sufficient insurance listing authorized drivers and you have a reasonable understanding of responsibilities toward maintenance costs and insurance costs, I personally believe it's an acceptable risk. In fact, I'm still an insured driver on both my parents' cars, although I no longer have either of them in my possession (out of state, even!).

Yes, in the event of the sort of accident that gets coverage attorneys arguing and taking one another to court, it could get either complicated or unpleasant (or both!), but in the ordinary course of life, allowing family members extended use of your car is, in my opinion, not a fraught experience, with the caveats above about insurance and maintenance costs.

Ask your car insurance agent what the appropriate coverage is with an extended loan of your car to your sister and go from there. Note: I am not an insurance agent, nor an insurance coverage attorney, nor have I even been involved in a serious car accident, but I have been an insured driver for months or years at a time on a car I did not personally own but was borrowing from a) my sister; b) my parents & c) my aunt.
posted by crush at 2:40 PM on May 25, 2018 [1 favorite]

If you are seriously thinking you may ask for it back in six months you aren’t really doing your sister a favour, she’s doing YOU a favour. You don’t own things, things own you. So I would pay her an amount each month that she is taking care of the car for you until you take it back.
posted by saucysault at 2:50 PM on May 25, 2018

Aside from the insurance thing (which could be hugely problematic), here's another weird thing: parking! Depending on the jurisdiction and the neighbors, she may not be able to park your car at her house for extended periods of time without getting a permit for it or registering it at her address. When a friend of mine offered to let me park my car in front of his house while he helped me sell it, I ended up "selling" it to him so he could get a tag and not run into trouble with his neighbors. If she lives in another jurisdiction or she needs a local parking permit, the lack of registration tied to her address could present some difficulty.
posted by fedward at 3:26 PM on May 25, 2018 [1 favorite]

My family has done this many times without incident. I think, however, that it 100% depends on your dynamic with your sister: something that we cannot know.

This is a situation that has the potential to be mutually beneficial, particularly if she likes the idea of having a vehicle at her disposal without actually purchasing one. When my brother and I did something similar to what you're proposing, we had a very honest, clear conversation about different scenarios (tickets, accidents, repairs, etc.) and agreed on what we would do in each situation. We also have a great relationship and similar thinking around what is "reasonable" in any given situation.

The most important thing on your end is this: you really need to be okay with something unexpected happening to the car. You need to trust your sister's judgement while also being okay with not getting the car back, if it comes down to it. I've found that it's just like lending money to someone: in my head it is always, always, always a gift. If I get it back, groovy! If not, I wasn't emotionally invested in it anyway.
posted by WaspEnterprises at 4:33 PM on May 25, 2018 [2 favorites]

If you think you might need it back in six months because you have reasons for thinking that (which may well be things you don't want to share here, so I absolutely am not looking for an explanation), then you need to be very, very clear up front with sis that this could happen. She might not want the hassle of arranging insurance in her name for such a short period if she doesn't really need the car to begin with.
(If I were sis and thought this was a permanent arrangement and you asked for it back 6 months later, I would be pretty ticked.)

If you are just a worry wart imagining disaster that cannot be predicted and $3000 is too large a gift for your comfort, an alternative is to plan to sell the car and offer sis right of first refusal. So you say something like "I am planning on selling the old clunker for $3k. I would be willing to sell it to you for $2.5k. Let me know what your answer is by X date because after that I will be advertising it."

My concern is this: If you can't afford to gift it to her, how will you react if the car gets totalled or stolen the first week that she has it? If you can't shrug and tell sis "No big. Don't worry about it." then this has Future Relationship Drama written all over it.

I was gifted an old clunker by one relative. Years later, I gifted an old clunker to a different relative. I am the kind of person who can at times say "Meh, no big. It sucks that the car is totaled, but it was just sitting in the garage gathering dust anyway. Don't worry about it."

And I would be inclined to gift it rather than lend it. That is more in line with my nature.

So my feeling is that if you have trouble with the idea that maybe you will need a car in six months and be kicking yourself for giving this one to sis, then you probably aren't as cavalier and easy going as I am. So you probably would not take it well if it were stolen or totaled while in her care.

If I gave a thing away and then needed a similar thing shortly, I would just use the situation as justification for buying a shiny new one. I would not get wrapped around the axle about wanting it back and yadda. What's gone is gone. Moving on.

You are not me. There is no requirement for you to be that cavalier. But if you know you are not, then the worst case scenario here is something you need to think about and if the answer in your heart of hearts is "I would sue my sister for the value of the car." then this looks like a bad idea to me.
posted by DoreenMichele at 5:21 PM on May 25, 2018 [1 favorite]