Transferring A Car Loan To Someone Else
Most folks don’t have the funds accessible to buy a car outright, which means financing it. There are certain situations where you may want or need to transfer your car loan, such as no longer being able to afford the payments or refinancing for a better rate. After deciding to transfer your car loan, the next step is figuring out how to go about the transfer.
When Can You Transfer a Car Loan?
Your original contract stipulations and many other factors contribute to whether or not you can transfer the loan to someone else or another loan entirely. One such factor would be the credit score of the individual who plans to take over the car loan. They would need to meet the requirements of your current loan servicer because the lender needs to approve it for any transfer to happen. As long as you follow the correct steps, your car loan can be transferred most of the time.
Reasons to Transfer a Car Loan
Car loans are a significant financial burden and a setback in your personal life or financial standing and can sometimes become overwhelming. Often, transferring your loan is not what you would prefer to do, but in situations where finances are out of control, this may be the best route for you. Here are some examples:
- Financial hardship. If your financial situation has drastically changed for the worse and is causing a great deal of stress, passing the loan on to someone with a higher, more stable income and better credit score may be a viable option. In this scenario, the person you are transferring to might be in a better position to make payments without undue stress and thereby help you prevent your credit score from taking a significant hit in the event you default. By doing this, you save your credit score, and you can buy back or search for another car when your situation improves.
- Refinance for a better rate. When you initially purchased your vehicle, your credit wasn’t great, so you only qualified for the loan with a significantly high-interest rate to compensate for your low credit score. In the interim, your credit situation may have improved dramatically, and you wish to refinance to lock in a better rate more reflective of your current standing. When you refinance, you alter the terms of your loan to a more acceptable interest rate. Perhaps your research has turned up a bank that offers a better term.
- Want to sell your vehicle. If you’re going to sell your current vehicle on your own but have an existing loan on it, you have a couple of options. The first option is the most ideal, where the purchaser pays off your car loan, releasing you from the loan. However, you can also transfer the loan to the purchaser as long as they meet the lending institution’s requirements. Any amount over the loan balance would be payable to you as a profit on the sale.
- Trade your car in for a newer vehicle. Another scenario in which you may wish to transfer your loan to another party is in a trade-in situation. This situation includes trading your current vehicle towards purchasing another vehicle. The same restrictions and expectations apply as far as the creditworthiness of the person taking your vehicle as a trade-in. A trade-in for a newer vehicle is completed at a dealership, so not typically an issue but worth keeping in mind.
Step-by-Step Instructions to Transfer your Car Loan
When taking out your original vehicle loan, be sure to read the fine print and understand all of the restrictions. Some loans do not allow you to transfer your loan to another party, regardless of the situation or whether or not the other party qualifies based on the loan requirements. If the lending institution doesn’t allow loan transfers, it will be outlined in your original loan paperwork. Unfortunately, if a loan transfer is not permitted as stated in your loan contract, you’re unable to transfer it and will need to look for a new solution.
Read Your Contract Carefully
If your original contract does allow you to transfer the vehicle loan, read the agreement carefully to determine if there are any additional fees associated with the transfer process. You’ll want to be aware of these fees so that you can determine whether or not you will be responsible for any fees upfront or if they can be added to the transferred loan. You will also want to discuss who’s responsible for such costs with the person taking over the loan.
Transferee Applies Loan
Once you have decided to transfer your car loan, the person you are transferring to must now complete the loan application process with the lending institution. The process will be similar to applying for an initial vehicle loan, including all required documents, credit checks, and proof of income. Sometimes, your lender might require the new owner to become a co-signer on your loan rather than transferring the loan.
Modify the Car’s Title
Once the transferee has been approved, the next step is to amend the title to transfer ownership to the new owner. If you’re changing lending institutions, that will need to be reflected on the new title as the lien holder will have changed. If it’s a straight transfer of name only, the current lender should already be listed as the lien holder. Check with your local Department of Motor Vehicles (DMV) for the required documentation and forms needed to complete the transfer.
Provide Proof of Insurance
The new owner will need to provide proof of insurance to the lending institution to finalize the transfer process. A car insurance agent can supply the new owner, or even the financial institution, with proof of insurance coverage.
Transferring your car loan isn’t always an easy process and shouldn’t be entered into lightly. As long as you have a loan that allows you to transfer and follow the appropriate steps, it can be a way to alleviate financial hardship, upgrade your vehicle, or improve your loan terms. If upgrading your ride is why you wish to transfer your loan, stop by North Coast Auto Mall to talk to a team member about trading in your vehicle for something on our lot.