Can You Transfer Car Loans to Another Person
Short answer
You generally cannot simply transfer a car loan to another person because loans are agreements between the lender and the original borrower based on that borrower's creditworthiness. To get another person responsible for the loan, the borrower must either refinance the loan in the new person's name or the new person must apply for a separate loan to pay off the original one.
What Does Transferring a Car Loan Mean?
Transferring a car loan means shifting the responsibility for paying off that loan from the current borrower to someone else. In plain terms, it would involve the new person taking over the monthly payments, the total remaining balance, and the legal obligation to repay the lender. The car remains the collateral for the loan, so if payments are missed, the lender can repossess the vehicle. Many people confuse transferring ownership of a car with transferring the loan itself, but those are different matters; ownership relates to the vehicle title, while the loan is a financial contract with the lender.
Why Can’t You Just Transfer a Car Loan to Someone Else?
Car loans are given based on the borrower's credit profile, income, and ability to repay. Lenders assess risks before approving a loan, and that contract is between the lender and the original borrower. Because of this, lenders typically do not allow loans to be simply "transferred" to a new borrower without going through a formal approval process. If the loan were transferred without lender approval, the lender would risk not getting paid back if the new borrower isn’t creditworthy. Therefore, the original borrower remains legally responsible until the loan is paid off or refinanced.
How Can Someone Else Take Over a Car Loan? A Worked Example
Suppose you bought a car with a $15,000 loan. After two years, you want your friend to take over the loan payments because you can no longer afford them. The loan balance is now $10,000. You cannot just hand over payment responsibility to your friend. Instead, your friend can either:
- Apply for a new loan in their name to pay off your $10,000 balance. This is called refinancing.
- You can try to ask your lender if they allow a loan assumption, where the lender transfers the loan to another borrower after approving their credit.
For example, if your friend has a good credit score and income, the lender may approve refinancing. Your friend’s new loan may have different interest rates or terms, but now your friend repays the lender directly, and you are off the hook. If the lender doesn’t allow assumption or refinancing, then the loan stays with you, and your friend would have to buy the car outright or arrange separate financing.
Why Does This Matter to You?
Knowing whether you can transfer a car loan matters if you want to sell or give your car to someone else but still owe money on it, or if you want to relieve yourself from the financial burden. It helps you avoid situations where you think someone else is responsible for the loan but legally you remain liable, which can hurt your credit if payments are missed. Understanding this also guides you in planning how to handle car loans in family or friend arrangements and prevents misunderstandings.
What Is the Difference Between Loan Transfer, Loan Assumption, and Refinancing?
- Loan Transfer: A casual term often used to mean transferring loan responsibility, but it is typically not legally allowed without lender approval.
- Loan Assumption: A formal process where the lender allows a new borrower to take over the existing loan under its original terms.
- Refinancing: Taking out a new loan, usually with a different lender or terms, to pay off the existing loan, effectively replacing it.
Loan assumption is less common with car loans but can be possible with some lenders. Refinancing is more typical and often the practical solution when someone else wants to take over payments.
What Steps Should You Take if You Want to Transfer Your Car Loan?
- Contact Your Lender: Ask if they allow loan assumptions or transfers. Some lenders do, but many do not.
- Check the Other Person’s Credit: The new borrower must qualify to assume or refinance the loan.
- Consider Refinancing: If assumption is not possible, the new person can apply for a new loan to pay off your loan.
- Transfer the Car Title: After the loan is paid off or refinanced, transfer the vehicle ownership through your state’s DMV.
- Get it in Writing: Ensure all new loan agreements are documented and you are released from the original loan.
What If You Can’t Transfer the Loan? Alternative Options
If no transfer or assumption is possible and refinancing is not an option, the original borrower remains responsible. You can:
- Sell the car, pay off the loan with the sale proceeds, and the buyer obtains their own financing.
- Continue making payments yourself.
- Seek help from a trusted adult, financial advisor, or credit counselor to explore options.
Avoid simply handing over the car and keys to someone else without resolving the loan. This can lead to legal and credit problems.
How Is Transferring a Car Loan Different from Transferring Car Ownership?
Transferring car ownership involves changing the name on the vehicle title to another person. This is done through your state’s Department of Motor Vehicles (DMV). However, if the car still has a loan, the lender usually holds the title until the loan is paid off. You cannot legally transfer ownership without paying off or refinancing the loan. Transferring ownership without addressing the loan does not relieve loan responsibility.
For comprehensive understandings of car loans, see How Car Loans Work and What You Should Know and for specific family situations, check Can I Transfer My Car Loan to My Daughter?.
Frequently asked questions
Can I sell my car if I still owe money on the loan?
Yes, but you must pay off the loan balance with the sale proceeds or the buyer must finance the car and pay off the loan. You cannot transfer ownership without clearing the lien on the title held by the lender.
What is a loan assumption and is it common for car loans?
Loan assumption is when another person takes over your existing loan with lender approval. It is uncommon for car loans because many lenders require refinancing instead.
Can my friend just start making payments on my car loan?
No, payments must be made by the person legally responsible on the loan. Your friend can only take over if the lender approves and the loan is refinanced or assumed.
How does refinancing a car loan work?
Refinancing means applying for a new loan to pay off your current loan. The new borrower gets a loan in their name, possibly with different rates and terms, releasing the original borrower from responsibility.
What should I do if I can’t afford my car loan payments anymore?
Contact your lender to discuss options such as refinancing, deferring payments, or voluntary repossession. You may also seek financial counseling.