Should You Transfer a Car Loan to Another Person?
If you can no longer afford your monthly car payment, you might be wondering if you can transfer a car loan to another person. Here's what you should know.
Whether it's an economic setback or a personal emergency, car loans can become a significant financial burden. If a borrower can no longer afford their monthly car payment, they may be wondering if they can transfer a car loan to another person. Sometimes they have a vehicle they don't use as much as they thought they would. No matter the reason, transferring a car loan to another person isn't a simple process, but it is possible in some circumstances.
Can You Transfer Car Loan to Another Person?
Most lenders will not simply transfer a car loan from one borrower to another with the exact same payments, terms, and rates remaining on the original loan. Typically, when the registration and title go to a new owner, the lender has to be advised. Once they run a credit check to confirm that the new owner can make the payments, a new loan is issued using their credit score.
While most lenders frown upon auto loan assumptions, some lenders may allow a loan takeover under certain circumstances. Provided the new borrower fills out an application to see if they qualify to assume the responsibility of the vehicle and payments, they may essentially apply for a new loan.
When Is Transferring a Car Loan in Your Best Interest?
There are many reasons someone may want to transfer a car loan to another person, not all of which are financial. Some of these reasons might include:
- You only needed the car for a finite period (for example, while in school) and no longer need it
- You are moving overseas and don't have time to sell the car
- You live in an area with great public transportation and don't use the car as much as you expected
- You have a family member who needs a car and is willing to take over your payments
- You want to purchase a cheaper car
- You can't afford the monthly car payment any longer
- You are in danger of having the car repossessed
What Are The Steps to Transfer a Car Loan?
It's a good idea to carefully read your original loan agreement to see if there are any specific contract clauses or language related to or prohibiting auto loan transfers or loan assumption. Then, contact the current lender to explain the situation and see if they'll agree to transfer the loan to another person. Ask about the next steps, the minimum credit requirement and other criteria, and any restrictions or fees associated with a transfer of the loan.
If they do agree to transfer the car loan:
- Fill out the paperwork. To complete the car loan transfer, the potential new owner will need to file a new loan application with the current lender. They'll need to go through the loan approval process (including a credit check) before they can be approved to assume your car loan
- Transfer ownership. Once the new borrower is approved for the loan transfer, you'll need to transfer the title to their name as proof of ownership. Instructions for how to transfer the title to another owner should be printed on the back of the title. Otherwise, you'll both need to go to the department of motor vehicles (DMV) and fill out the forms to change the title officially. You'll need valid IDs and a bill of sale
- Update registration and insurance. The new owner will need to register the car and insure it under their name before driving the car
If the lender does not agree to a loan transfer, you can:
- Cosign. An easy way to transfer an auto loan is to have the new owner simply cosign when refinancing the auto loan. Then, the new owner would also be responsible for the loan payments. This could work especially well if you are transferring the auto loan to a family member or intend to reclaim the car at some future date. As the original borrower, however, you could still be on the loan as well and would be equally responsible if the new borrower missed payments or defaulted on the refinanced loan.
- Sell the car. The new borrower will need to get a private party auto loan or a personal loan to buy the car from you. You pay off the current lender directly and transfer ownership to the new owner. You may have to pay early termination or pre-payment fees if you pay off your loan early.
- Trade your car in. If you are just looking to lower your payments, you could trade in your car for a cheaper vehicle at the dealership — which essentially is an auto loan transfer. Avoid incurring negative equity or rolling the balance of your previous loan into a new car loan.
What Fees or Costs Are Associated With Transferring a Car Loan to Another Person?
Any time you take out a loan, there will be additional fees associated. Transaction fees, application fees, or closing fees could all be part of the loan process and would usually be covered by the new borrower. The lender could also charge a transfer or administration fee for transferring the loan.
If there were any late monthly payments, there may be a penalty or fee. Those will need to be paid off before the auto loan is transferred to the new borrower.
In addition, the new owner will need to register the vehicle with the state, which comes with a fee. State registration fees range from $10 to $180, depending on the county and state. The National Conference of State Legislatures provide a detailed state-by-state guide for vehicle registration fees.
Depending on the lender and the situation, it is possible to transfer an auto loan to another person, provided a new borrower is willing to work with your lender and has a great credit score. But the process can be complex. These tips should help if your lender says, "Yes, we will let you transfer your car loan to another person!"