How to Transfer a Car Loan

Nearly every person who owns a car has had to take out a loan to finance their purchase at one point or another. After all, most people don’t have the finances to buy their vehicles outright. But what if you find yourself in the position where you are financing a car and can no longer afford to keep paying the loan? What if you want to refinance your current loan for a new agreement with better monthly payments? 

These are just some of the many situations where you may want to consider transferring a car loan. But how do you go about doing so? Let’s discuss the proper steps to legally transfer your car loan and detail the process, so you know exactly what it entails. 

Are You Able to Transfer a Car Loan?

In certain situations, your ability to transfer your car loan to another person, or transfer your loan’s balance to another loan agreement, is dependent upon the original contract and several other factors.

For instance, car loan transfers often require the person receiving the loan to have acceptable credit. This credit score requirement can sometimes exceed that of the initial loan, in part because the loan itself is being transferred.

However, in most circumstances, you can transfer a car loan under the right conditions by following the correct steps.

Why Would You Want to Transfer a Car Loan?

Whether it be unforeseen circumstances in your personal life or an economic setback, car loans can become significant financial burdens. While it may not always be your primary choice, there may be a situation that presents itself where transferring a car loan is in your best interest. Here are a few examples:

• You need to get out from under the monthly payment: If you’re under significant financial stress, you might consider transferring your car loan to another person with better credit and a more stable income. Under these circumstances, the new loan holder might have a better ability to pay, preventing your credit score from taking a massive hit by defaulting on the loan. Perhaps you simply don’t have the means to pay for the car loan in the foreseeable future. In this case, someone else could take on the loan’s financial burden until your income levels have been restored.

• You want to refinance:  Some people try to get a better deal on their car loan by refinancing. Refinancing a loan essentially means revisiting and altering the terms of the loan, such as the APR (interest rate), term limit, and more. You may have found a better car loan offer and wish to transfer the balance of your existing loan to the new loan contract to lower your monthly payments. In certain situations, terms can be restructured in a way that allows you to pay less in the long run by altering the contract duration. There are numerous reasons why one would consider refinancing their vehicle.
  
  Note that when refinancing your car loan, lenders typically require a strong credit score. You’ll need to check with your lender to see if you qualify. Another thing to keep in mind is that refinancing often means taking out a new car loan with a new lender rather than taking out a new loan with your existing lender.

• You want to sell your vehicle: Contrary to popular belief, you can sometimes sell your car for a profit without fully paying the loan value. Under this circumstance, however, you’ll need to transfer the loan to the new owner unless they want to pay you for the loan amount before making the purchase. Your car has to be worth more than the remaining loan balance for this option even to exist. When selling your vehicle in this way, the vehicle owner will then take responsibility for the loan and its regular required payments.

• You’re trading your car in for another:  Similarly, you may find yourself wanting to transfer your car loan if you are trading your current vehicle in for another. The same conditions and restrictions apply: the person taking the car needs to have the applicable credit score and finances to cover the loan amount and make regular payments.

Transferring a Car Loan, Step-by-Step

Presuming that your contract details don’t prevent you from transferring the loan flat out, you should be able to make the transfer by following a few basic steps.

Examine Your Contract

The first thing you should do is take a good look at your contract and note any caveats or terms and conditions that need further consideration. For instance, some loans may charge you exorbitant fees if you try to transfer the loan from yourself to another person or if you try to refinance.

You’ll also need to look closely at the contract details to determine how much money you have left to pay on the loan. This includes your loan requirements in terms of credit score, income level, and other contributing factors that may affect specific terms and restrictions of transferring a loan.

If everything looks good and meets the proper criteria, and the future loan holder is still in agreement, you can move on to the next step.

The New Loan Holder Applies for the Loan

At this point, the new loan holder has to apply individually for the loan. If it’s you, it’s essential that you know you can’t just transfer the loan to yourself from yourself.

If the loan holder is applying to your same lending institution, they’ll need to fill out a new application with the same terms and conditions of your current loan agreement. In some instances, your lender may require them to cosign on your loan rather than giving them total control over the loan.

If you’re refinancing your car through a new loan, you’ll also need to apply for that loan with your new lender. In other words, whoever is taking responsibility for the loan balance must be approved before any further considerations.

Title Modification

Once you or your transfer partner have been approved for the loan, you must then modify the vehicle’s title. The title describes the car’s ultimate owner, reflecting the new owner and the current loan holder.

To modify the title, you and the transfer partner (if applicable) must visit your local DMV office. Bring valid IDs and a bill of sale that transcribes the transfer’s conditions, monetary payments, and any other necessary information, and the DMV will have you fill out a form to enact a legal title transfer.

Car Insurance

If the new loan holder and title owner don’t have car insurance, they'll need to get some ASAP to be on the road legally. 

Summary

As you can see, it’s very possible to transfer a car loan, though certain conditions and contingencies may apply. Transferring loans must be executed legitimately and with a concrete paper trail to be exempt from any tax-related misunderstandings or complications from a lack of proper documentation.

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