Transferring a car loan from yourself to another person is somewhat tricky because a car loan is tied to your financial circumstances and creditworthiness. What’s more, lenders assess loans based on the original borrower’s financial stability, income, and credit score. With this in mind, in order to transfer the loan to another individual, you will need approval from the lender, and it may involve a new loan application process.
Am I Permitted to Transfer my Car Loan?
To begin, the individual wishing to take over the loan would need to meet the lender’s eligibility criteria. This includes undergoing a credit check, providing proof of income, and demonstrating their capacity to repay the loan. The lender will evaluate the new applicant as if they were applying for a new loan, even though the purpose is to assume an existing one. If the new applicant does not meet the lender’s requirements, the transfer will not be approved.
In many cases, lenders do not explicitly allow car loan transfers. Instead, the existing loan may need to be closed by the original borrower, and the person taking over the vehicle would apply for a new loan in their name. This approach ensures that the lender’s risk is assessed according to the new borrower’s circumstances. The original borrower can pay off the outstanding amount using the proceeds from the sale of the car, while the buyer uses their newly approved loan to finance the purchase.
It is essential to confirm with the specific lender whether loan transfers are permitted and, if so, what their process entails. Some lenders may offer flexibility, but this varies widely across financial institutions. Borrowers should contact their lender to clarify the terms and conditions of their loan agreement.
What if my Lender Doesn’t Allow me to Transfer my Car Loan?
An alternative option for the original borrower and the prospective new owner is refinancing. If the buyer obtains a new car loan through the same or a different lender, they can use it to pay off the existing loan. Once the original loan is fully settled, ownership of the vehicle can be transferred to the buyer. This process is more common and generally more feasible than directly transferring an existing loan.
Before pursuing any transfer or refinancing arrangement, it is vital for both parties to understand the financial implications. The original borrower should check for any early repayment fees or penalties associated with paying off the loan early, as these costs can impact the overall equation. Similarly, the buyer should ensure they are fully aware of the terms, interest rates, and repayment obligations of the new loan.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.