How Do You Take Over Someone’s Car Loan?
Navigate the complexities of assuming a car loan. Understand the critical steps, lender approvals, and legalities involved for a successful vehicle transfer.
Taking over someone’s car loan, or loan assumption, involves a new individual formally accepting financial responsibility for an existing auto loan. This process requires the original lender’s explicit approval, as many financial institutions do not permit such transfers. Its feasibility depends on the lender’s policies and the new borrower’s financial qualifications.
Lender Approval and Eligibility
The most significant step in assuming a car loan is obtaining permission from the original lender. Many financial institutions prohibit such transfers, so contacting the lender directly is necessary.
If permitted, the lender will rigorously evaluate the new borrower’s financial standing. Lenders require a strong credit history, with approved borrowers often having scores of 661 or higher for favorable terms. Scores below 660 might lead to less favorable terms or make approval challenging. The assessment includes verifying income to ensure the new borrower can manage payments.
Lenders also consider the debt-to-income (DTI) ratio, which compares monthly debt to gross monthly income. Many prefer a DTI of 36% or lower, though some approve up to 45% or 50% if other financial factors are strong. The new borrower will need to provide proof of identity, such as a driver’s license or passport, and proof of income like recent pay stubs, bank statements, or W-2 forms. Proof of residence may also be requested, often satisfied by a recent utility bill or mortgage statement.
The Loan Assumption Process
Once the lender confirms loan assumption is possible and the new borrower meets initial eligibility, the formal application begins. This involves submitting a comprehensive application, online, in person, or via lender forms, requiring detailed personal and financial information. The lender will then require supporting documents, including proof of income, identity, and residence.
The lender’s review process varies, often taking hours to several business days, though complex situations may extend it. Responsiveness in providing any additional requested information can help expedite this timeline. Upon approval, the final step involves signing new loan or assumption agreements. These legal documents formally transfer responsibility for the outstanding loan balance, interest rate, and payment schedule to the new borrower. The new borrower should thoroughly review these documents to understand all terms.
Transferring Vehicle Ownership
Distinct from loan assumption, the legal transfer of vehicle ownership is equally important. After loan assumption, the vehicle’s title and registration must be updated to reflect the new owner. This typically occurs at a state’s Department of Motor Vehicles (DMV) or equivalent agency. The original owner must sign over the vehicle’s title, releasing their ownership. If a lien existed, it will be recorded on the new title under the new borrower’s assumed loan.
The new owner then applies for a new title, submitting the signed-over title, a bill of sale, and often an odometer disclosure statement. Simultaneously, the vehicle’s registration must be updated, often involving fees and taxes. The new owner must also update the vehicle’s insurance policy to reflect their ownership and list the lienholder, if applicable, ensuring continuous coverage.
Financial and Legal Implications
The successful assumption of a car loan carries various financial and legal consequences for both the original and new borrowers. For the original borrower, formal release from loan liability means they are no longer legally responsible for the debt, which can positively impact their credit score as the account is reported as closed or transferred. Their positive payment history remains on their credit report.
For the new borrower, the assumed loan appears as a new installment account, establishing their payment history. Consistent, on-time payments will build their credit score. The initial hard inquiry may cause a temporary, slight dip. The new borrower is responsible for the remaining balance, interest rate, and payment schedule of the original loan. Beyond the loan, a clear bill of sale or assumption agreement between owners is important, detailing vehicle transfer terms. Sales tax implications are present; the new owner typically pays sales tax to the DMV when registering the vehicle, based on purchase price or presumptive value. Various transfer fees may also be levied by the DMV.