Oftentimes on this blog we get questions about how to get out of a car loan. This kind of question can come from many types of situations. Sometimes people have bitten off more than they can chew with their monthly car payments. Sometimes people lose their job and want to transfer the car loan to a potential buyer. And sometimes people want to return the car to the dealer. Whatever the reason is, if you’re looking to get rid of your car loan, you should know that there are ways to do it.
However, for come car loans, the contract prohibits you from transferring the loan. But don’t despair; even if you can’t transfer your car loan, there may still be actions you can take to get out of it.
First let’s look at how to transfer a car loan and then examine some of the alternatives:
How Do I Know if I Can Transfer a Car Loan?
Some lenders allow the transfer of a car loan to a “qualified” buyer. Your first step is to read through the fine print in your car loan contract and find out if it allows a loan transfer or not. If there’s a lot of fine print and you can’t find an answer, then you’ll want to contact your lender directly (via phone or in person) and ask them.
If your lender does not allow a car loan transfer, then you can still get out of the loan. You will need to sell your vehicle in order to do so, and you should bring the person who you’re selling the vehicle to with you to the dealership or financial institution in order to do a car refinance.
How to Transfer a Car Loan Or Sell Your Vehicle
Whether your car can be transferred or whether you’re going to sell and refinance the vehicle, you’ll need to follow basically these same steps:
1. Find Someone to Transfer/Sell the Car Loan to: You may already have someone in mind, such as a family member. Or maybe you need to find someone to assume your loan from you. In this case, you might need to sell someone on the benefits of buying a used car from you, like avoiding the hassle of a dealership and potentially not having to come up with a down payment. But you cannot find just anyone; this person must meet certain criteria. For example, they likely need a credit score as good or better than yours. They also will need to have acceptable insurance coverage (dictated by the requirements of the contract and lender).
2. Choose Whether to Modify with Your Lender or Get a New Lender: You can modify your loan with your existing lender, or choose a new lender altogether who will pay off the original payment and issue a new loan to the new buyer. Note, however, that if you go with a new lender and your contract has a prepayment penalty, you may incur this penalty. Not to mention, if your outstanding loan balance is greater than the value of the car, then you’ll still have a loan balance leftover after the sale is complete. Also, there will likely be fees involved for the modification or refinance of the original loan, such as loan assumption fees, loan transfer fees, processing fees, and/or application fees.
3. Transfer and Hand Over All Relevant Documents to the New Owner: You will need to transfer all relevant paperwork to the new owner. Depending on your state laws, you can transfer the title of the car either at your local Department of Motor Vehicles or at a notary. Ensure that the lender has changed the lien holder on the car loan before leaving their office. Also, have your current inspection and emissions testing paperwork available.
One final thought. It’s possible that you are looking to transfer your car loan so that you and your credit report do not suffer the ill effects of a repossession. If this is the case, then please do not wait until the last minute to tell your potential buyer that you are behind on your loan payments and that the vehicle could be repossessed at any time unless the past due payments are made immediately. It’s only fair to clear this up beforehand so that the buyer won’t have any concerns about it.
The bottom line is, the answer to the question “Can I transfer my car loan?” is “Yes.” But it’s not going to work in every situation, and you’ll need to go through the process in order to make it happen, including the paperwork to place the vehicle into the new owners name and any paperwork to transfer the loan or finalize the repayment of your loan with the buyer’s new loan.
If you have any questions about how this works, feel free to ask us in the comments below.
Image Credit: Thomas Hawk