# Automotive financing and liability questions **URL:** \ **Category:** Factual Questions\ **Created:** [November 9, 2003, 8:58pm UTC](https://boards.straightdope.com/t/automotive-financing-and-liability-questions/212282 "2003-11-09T20:58:14Z")\ **Posts on this page:** 4\ **Page:** 1
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [November 9, 2003, 8:58pm UTC](https://boards.straightdope.com/t/automotive-financing-and-liability-questions/212282/1 "2003-11-09T20:58:14Z")
Well, it happened again. Friday night my college student neighbors had a kegger. Finding it impossible to ignore the roar of 100 boogying collegiates, I arose and joined them. It develops that the proprietor of the keg and I discussed his potential purchase of my “extra” car. Having now finished carting away the wounded, he just dropped by to revisit the conversation. Since neither of us could remember what was said exactly, we approached a new deal. I’ve tentatively said I’d be willing to let him buy it on time. Questions arise: 1.) Would I, as a lien holder, bear any liability should he attempt a suicide attack on a school bus, or some other party of innocents? 2.) Is there some standardized boilerplate car financing agreement available somewhere, or should I just crank up my attorney? 3.) Do I need to charge him the IRS’ minimum interest rate for a short term loan? 4.) What other pitfalls are there that I’m not thinking of at first pass here? I’ve recalled that my insurance precludes coverage of any unmarried male drivers under age 25 and know that I’ll need to address that before he test drives it. ---
**Author:** ![Early\_Out](https://avatars.discourse-cdn.com/v4/letter/e/6f9a4e/32.png) [@Early\_Out](https://boards.straightdope.com/u/Early_Out)\ **Post date:** [November 9, 2003, 10:26pm UTC](https://boards.straightdope.com/t/automotive-financing-and-liability-questions/212282/2 "2003-11-09T22:26:46Z")
Well, I’ll take a crack these: > [@](#): > > \*Originally posted by Ringo \* > **1.) Would I, as a lien holder, bear any liability should he attempt a suicide attack on a school bus, or some other party of innocents?** No, you wouldn’t be subject to any liability, any more so than GMAC faces liability when one of their car loan customers runs someone over. Where your exposure comes from is in the possibility of losing your collateral. If your neighbor stops paying for the car, you can have it repossessed. But if he totals the sucker, _then_ stops paying for it, you’ve got a problem. This is why lien holders generally insist that the borrower obtain collision and comprehensive coverage, not just the minimum liability coverage required by state law. > [@](#): > > **2.) Is there some standardized boilerplate car financing agreement available somewhere, or should I just crank up my attorney?** I’m sure there is, and any car dealer would have access to it. I’m just not sure how one would get hold of it, if you’re not in the business. Your local library might have a legal forms book that might contain it. > [@](#): > > **3.) Do I need to charge him the IRS’ minimum interest rate for a short term loan?** If you charge him less than market interest rates, the IRS would consider the difference a “gift” from you to the borrower. However, since the limit for gifts is $11,000 per year (before any gift tax issues arise), it’s unlikely that this would become an issue, unless you’re selling him a Maybach. Besides that, new car dealers often offer very low rates, so even defining “less than market rate” is difficult. > [@](#): > > \*\*4.) … I’ve recalled that my insurance precludes coverage of any unmarried male drivers under age 25 and know that I’ll need to address that before he test drives it. \*\* Call your insurance agent, who can probably answer this one off the top of his head. ---
**Author:** ![Early\_Out](https://avatars.discourse-cdn.com/v4/letter/e/6f9a4e/32.png) [@Early\_Out](https://boards.straightdope.com/u/Early_Out)\ **Post date:** [November 9, 2003, 10:46pm UTC](https://boards.straightdope.com/t/automotive-financing-and-liability-questions/212282/3 "2003-11-09T22:46:17Z")
I missed the easy answer to question #2: find somebody who currently has a car loan, borrow his loan agreement, and type up the sucker. I’ve got an old one (haven’t had a car loan in 20 years), and it’s from the wrong state for your purposes. You’re better off getting a recent one from TX. ---
**Author:** ![Ringo](https://avatars.discourse-cdn.com/v4/letter/r/779978/32.png) [@Ringo](https://boards.straightdope.com/u/Ringo)\ **Post date:** [November 10, 2003, 5:11am UTC](https://boards.straightdope.com/t/automotive-financing-and-liability-questions/212282/4 "2003-11-10T05:11:41Z")
Yeah, the comprehensive coverage is something I’ll have to see if he can do; I’ll need to have it in place. I haven’t had a car loan in a long time myself. I’ll try to find some boilerplate _and_ get my attorney to look it over. Thanks for the input.