How to Loan a Car to Someone

Giving Someone Onetime Permission

Ask why they need the car. You don’t want someone using the car for commercial purposes, since your insurance probably doesn’t cover that activity. You also don’t want them to use the car for an illegal purpose. It’s unlikely someone will admit that they want to use the car to sell drugs or for some other illegal purpose. However, you still should ask what they want the car for. Assess whether you think their reason makes sense.

Check their license. A driver must have a license. In the U.S., someone with a license in any state can drive in any other state. However, if the person is from another country, you should research your state’s driving requirements. A foreign driver might need an International Driving Permit.

Assess whether you trust the driver. You don’t want your car returned damaged, so try to figure out if the driver appears responsible. If you know the person well, assess how responsible they are in other areas of their life. Do they have a job? Do they keep a clean home? You might want to decline letting a stranger borrow your car, since you don’t know anything about them.

Check whether your insurance covers them. Generally, your insurance will cover anyone you give permission to drive the car. The insurance doesn’t travel with the driver. In many places, you can exclude certain people from your car insurance. For example, you might have excluded your teenage child so that your insurance rate would be lower. Double check that you haven’t excluded the driver.

Give a deadline for returning the car. You don’t want the driver to think they can hold onto the car indefinitely, so tell them when to return it. Also ask for their cell phone number. You might need to call them if they are late returning it.

Examine the car for damage. When the car is returned, check to see that it’s in good shape. Walk around the car and check that there are no dings or scratches and that the tires haven’t been damaged at all. Also check the inside of the car for stains, burn marks, or excessive dirtiness. Briefly check the odometer to confirm the person drove it as they claimed. For example, if someone said they needed your car to go buy groceries, it shouldn’t have hundreds of miles on the odometer.

Negotiate payment for repairs. If the driver damaged the car, they should agree to pay to fix it. However, someone borrowing your car might not have a lot of money. Try to negotiate a payment. If you are unsuccessful, you might need to take them to court.

Drafting a Car Sharing Agreement

Name the parties to the agreement. If you’re constantly loaning your car to someone, you might want to draft a car sharing agreement. Begin by identifying who will be using the car. For example, you can write, “This car sharing agreement is between Melissa Jones (‘Melissa’) and Allen Applebee (‘Allen’), who agree to the following….”

Identify your car. Include your car’s year, model, and VIN (Vehicle Identification Number) so that there’s no question what car you are talking about. Also state who owns the car. For example, you can write, “The parties agree they will share the use of a 2015 Toyota Camry, VIN#: XXXXXXXXXXX, (‘the car’). The car is owned by Melissa Jones, and Allen Applebee acknowledges that this agreement does not make him a co-owner. As the owner, Melissa will make all decision regarding the car.”

State where the car will be parked. Choose a location that is accessible to both, unless one person has a garage and you want it stored there. It’s probably best to store it at the same location every night. For example, you can write, “When the car is not in use, we will park it at the public lot on Longdale Drive.”

Come up with a schedule. Identify who will use the car when. Be specific. The more specific you are, the fewer disputes you will have in the future. For example, you can write, “Allen will use the car Monday through Friday in order to drive to and from work. He will have the car from 5:30 pm and return it at midnight. Allen will not use the car at any other time unless he has Melissa’s permission.”

Explain when and if someone can take a long trip. Long trips will put a lot of wear and tear on the car. It’s a good idea for the person sharing your car to get your permission before taking a long trip. You can also have the person pay a rental fee. Calculate the fee by day or by miles driven. Sample language might read, “If Allen wants to take the car overnight, he will pay rent of $100 each day. He will pay Melissa this amount of money before leaving for the trip. Melissa may also set any other conditions to the car’s use during the trip as she sees fit.”

Prohibit certain uses. Since you own the car, you can limit what the other person does in it. For example, you might not want them to smoke, eat, or drink in the car. You should also state whether you want animals in the car. To protect yourself legally, you should also state that the car can’t be used for an illegal purpose.

Divide costs. Although you remain the car’s owner, you might want the other driver to cover some of the costs of registration, repairs, insurance, etc. Spell out how these costs will be divided. For example, you might divide them 50/50. Don’t forget gas. Ideally, each person will pay for the gas they use, but it isn’t always realistic to divide the costs this way. Instead, you can divide the costs 50-50 if you drive an equal amount. Otherwise, you can estimate the amount of use and divide the costs of gas at the end of the month. For example, you can write the following in your car sharing agreement: “Receipts for gas purchases will be stored in the glove compartment. At the end of the month, we will divide the costs 50/50.”

Ask the other driver to indemnify you. You need to include this provision in case the other driver is in an accident. They should pay for the cost of repairs and any other expenses you incur. For example, you may need to rent another car as you have your car fixed. You might include the following provision: “If Allen Applebee is involved in an accident for which he is at least partially responsible, then Allen will pay all insurance deductibles. Allen will also compensate and indemnify Melissa for other expenses related to the accident but not covered by the insurance, including the costs of fixing the car. Allen will also pay for any increase in the costs of insurance premiums.”

Explain how you will resolve disputes. Sharing a car isn’t always easy, and you’ll get into disputes now and then. Identify how you will resolve them. For example, you might agree to attend mediation together. In mediation, you’ll explain your dispute to a neutral third party, who will help you reach a mutual agreement. A mediation provision might read as follows: “We will first attempt to resolve disputes by discussion. If that fails, we will hire a mediator and divide the costs equally. Both parties agree mediation is voluntary but will work in good faith to resolve their differences.”

Explain how you’ll end the agreement. If the car sharing doesn’t work out, you might want to end it. Include a provision that gives you the right to do that. Explain how much notice you’ll give ahead of time.

Sign and date the agreement. Sign in front of a notary public. You can find notaries at your town office, courthouse, or in large banks. Also use the American Society of Notaries website: https://www.asnnotary.org/?form=locator. Show the notary your personal identification, such as a state-issued ID or passport. You’ll probably have to pay a small fee to have the agreement notarized. Distribute a signed copy to the other driver and keep the original for your records.