As you’re paying your monthly auto loan each month, you might be wondering: are car loans transferable? Maybe you want to get out from under a loan. Perhaps you’re hoping for a better deal with a new bank. Either way, there’s a lot to know. We’ve researched the subject in-depth to provide you with the answers.
Car loans are transferable—to a point. You can usually transfer a car loan in a few scenarios, such as:
- When you’re buying a new car and rolling the loan balance into the new financing.
- If your buyer qualifies for a loan to cover the purchase of the vehicle.
- When you find a good deal with better financial terms.
- If the loan or lease is assumable, according to the lender, and they agree to the transfer terms.
There is a range of scenarios when transferring your car loan might be ideal. And sometimes, it’s just about the worst idea for your credit score and your wallet. But there are details you should know about before you do so, so we’ll share what we’ve found below.
Can You Transfer a Car Loan to Another Bank?
When you buy a car, you might go with the loan options at the dealership or sales lot. But later, you may find out that your financial institution offers a much better deal. So, the question becomes whether you can swap the loan with your current lender to one via your private bank.
Transferring a car loan is refinancing. It can be a good idea if interest rates have dropped or your credit score has increased since you bought the vehicle. Credit unions especially tend to offer better deals to their members, but not every option will save you cash.
Securing financing can be a challenge in many cases, too. Each lender has a set of criteria you and your car must meet.
For example, most banks won’t want to refinance a car with a lot of miles on it, or one with a low remaining balance. Other limitations may exist, and there might be extra fees as well.
The best strategy is to talk to your bank or lender you want to swap with to see what their process and qualifications are. But be sure to read the fine print and understand the details before you sign.
Can You Transfer a Car Loan to Another Vehicle?
Technically, it’s possible to transfer a car loan from one vehicle to another. But most experts don’t recommend it—and neither do we. In theory, you can return a car to the dealership, choose another model, and have remaining expenses factored into the new payment schedule.
If you still owe on your current vehicle, it’s not a good idea to roll that balance into a new loan (and higher payments). In terms of brand-new cars, you’re paying more than the auto is worth since it begins to depreciate the moment it leaves the lot.
Trading it in for the next year’s newest model and transferring the previous loan means you’re paying more than what the car is worth—even considering standard depreciation.
Especially at a dealership, the car salespeople might be eager to make you a “deal” by taking your old car, handing you the keys to a new one, and increasing your loan balance exponentially.
Continuing to pay on an auto you no longer own doesn’t make good financial sense. And remember—car dealerships often prefer more and costlier financing because it’s better for their bottom line.
Protect yourself by checking out other options, like selling your current auto before trying to finance a new one. You could also trade-in your car and then secure a loan for a new one, no transfer necessary. Getting pre-qualified with a smaller bank or credit union can help, and doing so will give you an idea of where you stand.
Can You Transfer a Car Loan to Another Person?
In some cases, you can transfer a car loan to another person. The decision comes down to your lender’s policies or preferences. A transferable car loan is called an assumable loan, and the transaction is an assumption.
An assumption involves your prospective buyer applying for a loan to cover the vehicle. The lender will require an application and credit check before they’ll consider the transaction. For a lot of sellers, this isn’t exactly good news. After all, if your potential buyer has decent credit, they could buy a vehicle off a sales lot instead of purchasing yours.
Still, having another person assume your loan may be a viable option to get rid of a car and an unmanageable payment. Plus, many lease options are also assumable, many without any fine print to sift through. However, some involve financial liability on your part, even post-transfer, so knowing what you’re signing is vital.
One way to avoid complicated transfers is by having the buyer take out a loan for your loan balance, then paying you in cash. This way, you can pay off your remaining balance, and the person who bought the vehicle gets the title and registration (and responsibility).
Of course, it’s more work for the buyer, so it might not work out in your favor unless the vehicle is rare or very valuable.
Does Transferring a Car Loan Affect Your Credit Score?
Many activities related to your automobile loan can affect your credit score. Missing a payment, underpaying, and even paying off the balance can cause your score to fluctuate. Credit is a complicated beast, though, so there’s no surefire way to say whether transferring a loan will be good or bad for your creditworthiness.
For someone who has overextended credit, like high credit card balances, transferring a car loan might improve their score. The loan dropping off would mean their total debt is lower, and that’s a plus. But if your vehicle loan is one of few items on your credit report, closing it out could mean a dip in your score.
Lenders want to see a robust credit history going back multiple years. They also want to see various types of credit and accounts. So, if you lack history or variety, transferring a car loan could negatively impact your score.
Lenders also use a range of credit measures, meaning you’re left to wonder whether they’re looking at Equifax or TransUnion credit scores, or something else entirely.
Can You Get a Car Loan for Someone Else?
Technically, there’s no way to apply for a loan for someone else. However, you can co-sign for someone else to get a loan. Co-signing means you take partial financial responsibility for the person’s loan. Your credit and income figures combine with theirs and increase the odds they’ll be able to afford a decent car.
If they miss a payment, however, the consequences will affect you both. In contrast, if they pay the loan on time—eventually settling it completely—that’s good news for your credit report.
You might be wondering about a car loan for another person because you want to give a gift. But the only way to gift someone a car as a surprise is to put it in your name. Having someone else drive a vehicle that’s in your name (and under your insurance policy) can be risky, so tread wisely if that’s something you’re considering.
Can Someone Else Take Over Your Car Payments?
You can have someone else take over your car payments without getting permission or doing any paperwork. That said, you shouldn’t. If your name remains on the loan—and the title—then you’re still liable for the vehicle and any potential damage it causes.
If you let someone else drive your car (but have them make the payment), you could be on the hook if they get in an accident. And if they miss a payment, it dings your credit, not theirs. Getting and keeping insurance coverage can be tricky, too, unless the person lives with you or is your spouse or relative.
You might even get parking or traffic tickets in your name, thanks to their poor driving habits (and red-light cameras). It’s not advisable to let someone else drive your car unless you trust them with your life (and your credit). It’s much more preferable to go the legitimate route and have them purchase the car from you or assume the loan—and it could save your credit.