Can You Transfer a Car Loan to Someone Else?

Transferring a car loan to someone else is possible, but it’s not always easy and typically depends on the lender’s policies. An auto loan can help you buy a car to support your lifestyle, but if a change in your financial situation makes it difficult to make loan payments, or if you simply no longer need the vehicle, you might consider moving the loan into another person’s name. Let’s take a closer look at how the car loan transfer process works and what alternatives are available if a transfer isn’t possible.

Reasons you might want to transfer your car loan

Transferring a car loan may be worth considering in a few situations:

• You can no longer afford your payments: Transferring the loan to someone else before you start missing monthly payments can help you avoid any negative impact on your credit report.
• You’re gifting the car to someone else: You can give a car as a gift, but if you still have a loan, you’ll need to make sure the new owner’s name is on the loan and your name is removed. Lenders typically charge a loan transfer fee, so it’s important to ask about the costs before moving forward.¹
• You’re selling the car to someone willing to take over the loan: If you have a good interest rate or short remaining repayment term, it may make more sense for a buyer to take over the loan payments rather than for you to pay off the loan first. Remember, since they’re taking on the remaining loan, you will likely make less of a profit than if they bought the car from you outright.
• You’ve experienced a divorce or separation: A car loan might be considered part of a divorce settlement. If you and your ex-spouse are both on the loan, or you’re the primary loan holder and agree to give your ex-spouse the car, transferring the loan might be more cost-effective than buying out the loan.

How does a car loan transfer typically work?

Some lenders offer assumable loans, or loan types that allow you to transfer a loan to another person. Many car loans are not assumable, which means the original borrower remains legally responsible for the repayment of the loan unless the lender agrees to transfer the loan.² The availability of a car loan transfer depends on the lender’s policies, and the process may not always be the same. Generally, however, this is how it works:

1. Contact your lender

First, ask your lender what type of loan transfer options they offer. Lenders may indirectly transfer a loan to someone else through a new loan application. In rare cases, your lender may allow a direct loan transfer, which locks in the same interest rate, terms and payment schedule when someone else takes over responsibility for the repayment of the loan.³ In either case, before the transfer, the loan typically needs to be in good standing, and the car should still be in good condition. If the lender does not offer loan transfers, they may still be able to work with you to refinance the loan or defer payments.

2. The new borrower applies for a loan

Typically, the new borrower will have to submit a new loan application for both a direct loan transfer and an indirect transfer. For a direct loan transfer, the qualification process may be faster since the loan terms are already in place.

For an indirect transfer, the new borrower must qualify for a rate and terms based on their own credit score and application.⁴ For both types of loan transfers, the official application will trigger a hard credit check that may cause a small, temporary dip to the borrower’s credit score.

3. The loan is approved

If the new borrower is approved for a direct transfer, the loan will be transferred into the new borrower’s name. If the new borrower is approved for a loan with a new interest rate and terms, you’ll typically have to pay off your original auto loan first. You can do that with cash you have on hand, or the new borrower can pay it off with their loan proceeds.⁵

4. Updating the title and registration

A car title is a legal document that states who the owner of the vehicle is and includes important information about the vehicle’s history. After applying for a loan transfer, you’ll have to update the title and registration for the car to be in the new owner’s name. Coordinate with the new owner to make sure you meet the right requirements — each state has a different process. Both you and the new owner should each contact your respective insurance company to ensure the vehicle is taken off your insurance and added to the new owner’s policy.

What are your options if you can’t transfer the loan?

If a direct loan transfer isn’t allowed, and the lender won’t approve an indirect transfer due to the borrower’s creditworthiness, you may still have a few options. Your options may look different depending on why you’re transferring the loan.

If you’re looking to transfer the loan because you can no longer afford payments, some alternatives include:

• Refinancing your car loan: An auto loan refinance replaces your current loan with a new one that has different terms. You may be able to refinance to get a lower interest rate or a longer repayment term, which can lower your monthly payment.
• Asking for a deferment: A deferment is a temporary break in the payment of your monthly installments. Not all lenders may be willing to offer you a deferment, but if you have a short-term financial setback, such as an injury or loss of income, you might be able to negotiate one with your lender.
• Selling your car to a dealership: Dealerships buy and sell cars frequently and have their own relationships with lenders. They may simplify the process for you if you need to get out of a car loan.
• Voluntarily surrendering your car: Most car loans are secured loans, which means they generally use the car itself as collateral. Collateral is something of value that you use to back a loan. Secured loans generally offer lower interest rates and higher loan amounts than unsecured loans, but the lender can take your collateral if you don’t repay the loan. If your loan is in good standing, voluntarily surrendering the car may be an option to allow the lender to recover some of what’s owed, which may reduce — or in some cases eliminate — the amount you have to repay.⁶

If you’re trying to transfer your car loan because you’re gifting the car, selling it or giving it to an ex-spouse in a divorce settlement, you’ll have different options. Some possibilities include:

• Refinancing with the new borrower as a cosigner: If your lender won’t transfer the loan to the new borrower, you may be able to add them as a cosigner if you refinance. In this case, both of your names would be on the loan, and you will be equally responsible for repayment of the loan. If you’re selling or giving the car to a trusted friend or family member, a cosigning arrangement could work for your needs.⁷ Note that not all lenders will allow a cosigner to be added to the title, so ask your lender for more details.
• Working out an agreement with the new borrower: Another option if you have a close, trusting relationship with the person receiving your car is to have them cover your loan payments. You might keep the loan in your name, but have the new borrower agree to make monthly payments to you. If you go this route, be sure to put the terms of your agreement in writing so that both parties understand the expectations.⁸
• Having the new borrower apply for a loan with a different lender: If the new borrower can’t qualify for an auto loan with your current lender, they may still be able to get a loan from a different lender. They can then use the funds to pay off your existing loan.⁹

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Know your options before you transfer your loan

If you no longer need a car, you’re having a hard time making payments, or you’re selling or giving your car to someone else, you may be curious about transferring your auto loan. Although a direct loan transfer may not be available from your lender, there are other ways to transfer a loan to someone else or find a solution for a high monthly car payment. The first step is speaking with your lender, so you can weigh all the options and protect your credit and finances in the process.

Sources

1, 2, 8, 9 https://www.caranddriver.com/auto-loans/a43113216/car-loan-takeover/
3, 4, 5, 7 https://www.experian.com/blogs/ask-experian/how-to-transfer-car-loan-to-someone-else/
6 https://consumer.ftc.gov/node/77396