The Hands-Down Worst Loans You Can Inherit

Total household debt in the United States in mid-2025 reached $18.39 trillion, according to the Federal Reserve Bank of New York, setting a new all-time high. You might not want to be part of this statistic because you believe that taking out loans will keep you poor forever, meaning you try to avoid borrowing at all costs. However, you can't control how much family members borrow.

What happens when a loved one dies and you inherit the estate that includes different types of loan balances? The estate is responsible for paying some of the loans before you can receive your inheritance. Other notes may be forgiven by the lender or may be settled for less than the remaining balance. How the lender settles the note depends on the type of loan. Consequently, you might not want to inherit certain types of loans.

The worst type of loan to inherit is one where you were a co-signer on the debt. For example, your loved one may have obtained a startup business loan with no money or collateral by having you co-sign it. As a co-signer, you are guaranteeing the debt. You could be a co-signer on a credit card, student, business, auto, or personal loan. The lender will attempt to retrieve the balance on the co-signed note from the decedent's estate. However, if the estate can't cover the balance, you as the co-signer might be responsible for paying the remaining balance. The co-signed debt doesn't disappear.

If your loved one took out a reverse mortgage loan before dying on a home that you inherit, this is a frustrating type of loan to have on property that you would like to keep. A reverse mortgage is one that allows homeowners to borrow against the value of the house. As long as the borrower has paid off most of the existing mortgage and is at least 62 years old, this person could qualify for a reverse mortgage. The homeowner retains the title to the home, but the loan balance must be repaid upon the homeowner's death.

If you inherit a house with a reverse mortgage, you have some options, but you must quickly decide what to do. Your options include repaying the loan balance and keeping the home or selling the home and paying the loan (while keeping any remaining equity). If the amount owed is greater than the home's value, you'll receive nothing after selling, which is frustrating. In a case like this, many people allow the lender to repossess the house.

In most cases, you have up to 30 days after the homeowner dies to make a decision. In other cases, you could receive an extension of up to six months, although you might need to hire an attorney. If you want to keep the house, the reverse mortgage is a poor type of loan to inherit because of the condensed timeline to act.

If a loved one's car is part of your inheritance after that person dies, you might not receive the vehicle if money is still owed on it. If the borrower dies while a balance exists on the loan, the lender could consider the loan to be in default. The car usually serves as collateral, meaning the lender could take the car.

As the heir, you might be responsible for continuing to make the payments on the car to prevent the vehicle from being repossessed. If you're willing to continue making payments on the automobile, the lender might be willing to transfer the auto loan into your name. However, if the remaining length of the note is significant, you might not be willing to make this commitment. For example, if your loved one wants you to inherit a car as part of the estate, ideally the decedent would've thought twice about taking out a 96-month car loan.

The contract related to the car loan will likely have a "death clause" section. It will explain the requirements for the heirs or the estate to pay back the loan to avoid having the car repossessed. Some older people will purchase credit life insurance as part of the auto loan. Paying for this provision means buying insurance coverage that pays off the loan upon the borrower's death. The heir then receives the car with no remaining loan balance, which is the best-case scenario.