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Given the following scenario for my wife, what should I be watching out for?

Specific to the United States - her father, along with his friend, bought a car to give to her, with traditional 72-month financing. His friend was the primary applicant on the loan, and he was the co-applicant. They have not and do not ever drive the car, only my wife. His friend was involved to help build up his own credit history (not my idea, and I wouldn't have approved of this, but this was before my time).

The car registration is in her dad's friend's name, but I am paying the registration each year. Her dad is paying the bill on the car loan as a gift to her.

I have car insurance for both of us on the car, under our names, and pay that bill myself - it's a good policy, definitely enough coverage to satisfy the terms of the car loan.

Are there any issues here? I've read that the owner has to actually be insured, but I don't know if that's true. I also don't know if there's any issue with driving a car that someone else owns and registered, without any specific written permission to do so.

I know one solution would be that I can buy the car from him, so he can pay off his loan and I can take out a new loan and registration in my name, with her dad continuing to pay the bill. But if everything is kosher, I'm content leaving things as-is.

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    I think you're going to have to specify a state for this one too. It might depend both your state and your father-in-law's.
    – user32479
    Commented Dec 23, 2015 at 16:35
  • Can you please elaborate how this is related to personal finance and not a question of law?
    – ChrisInEdmonton
    Commented Dec 23, 2015 at 16:39
  • @ChrisInEdmonton Sorry, should have been more clear. I would assume that if there is a problem, it would be with the car loan, so the "finance" part would be whether car lenders care who actually is insured on the vehicle.
    – wookie23
    Commented Dec 23, 2015 at 16:50
  • @Brick Arizona for both, but I'd be mostly concerned about the car loan piece of this, so I don't think state would be as much of a factor.
    – wookie23
    Commented Dec 23, 2015 at 16:51
  • The holder of the registration is the car's avtual owner. The risks are mostly to them, outside of that. Driver needs liability insurance, whether legally required or not.
    – keshlam
    Commented Dec 23, 2015 at 16:54

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this is a bit unusual, but not unheard of. i have known more than one car whose owner was not its driver. besides the obvious risk that the legal owner of the car will repossess it, this seems fairly safe. your insurance should cover any financial liability that you incur during an accident. even if the car is repossessed by the owner, you are only out the registration fees. i would suggest you avoid looking this gift horse in the grill.

her father on the other hand might be in for some drama and financial mess if he has a falling-out with his "friend". this arrangement reminds me of divorces where one spouse owns the car, but the other drives it and pays the loan. usually, when the relationship goes south, one spouse is forced to sell the car at a loss.

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  • Thanks - I can deal with giving up the car if things go bad for any reason. I'm concerned more with having the loan called in early if the lender finds out, or the insurance company refusing to pay if there's a major accident. I'd also rather not pay for (or force him to pay for) insurance for someone who doesn't even drive the thing, assuming it's legal.
    – wookie23
    Commented Dec 23, 2015 at 21:10
  • i can't imagine a scenario where the bank would call in the loan. also, the insurance will pay assuming you did not lie about who normally drives the car, or where it is normally driven. honestly, a reputable insurance company will usually pay out a claim even under questionable liability, as long as you were not attempting to commit fraud. if you are really worried, just shoot an email to your agent to confirm.
    – teldon james turner
    Commented Dec 23, 2015 at 21:15
  • The main concern with insurance re: loans is not liability; it's coverage of the car itself in case it is damaged (so the bank still has some value securing the loan).
    – Joe
    Commented Dec 23, 2015 at 22:22
  • when i said "liability", i wasn't referring to "liability coverage". i meant your insurance company being "liable" to pay your claim under a comprehensive policy. basically, any big-name insurance company will pay you (or the bank for the car loan) assuming you are not trying to commit fraud (which you aren't).
    – teldon james turner
    Commented Dec 23, 2015 at 22:27

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