How to Switch a Car Loan to Another Person

Transferring a car loan to another person involves more than changing a name on existing paperwork. Most auto lenders do not allow a direct transfer of an existing loan to a new individual, as this process, called loan assumption, is uncommon for vehicle financing. Instead, achieving this outcome requires one of two indirect methods. The new person can refinance the vehicle in their own name, or the original owner can conduct a private sale, with the new person securing their own financing or paying in cash. These processes ensure that financial responsibility and vehicle ownership are legally transferred.

Gathering Information and Documents

Before initiating any process to transfer a car loan, both the current owner and the new owner must gather information and documentation. This preparation is important for a smooth transaction, ensuring details are available for lenders and motor vehicle departments. Gathering these items helps streamline the process.

The current car owner needs to obtain details about their existing loan. This includes the payoff amount, often a “10-day payoff” figure, along with the loan account number and instructions on how the payoff can be made. Lenders provide this payoff quote through online banking, automated phone systems, or by mail. This amount represents the total sum required to satisfy the outstanding debt.

Vehicle information is also necessary. This includes the Vehicle Identification Number (VIN), a unique 17-character alphanumeric code. The VIN is found on the driver’s side dashboard near the windshield or on the driver’s side door jamb. Other details include the make, model, year, current mileage, and general condition.

Information about the vehicle’s title is important. Determine where the title is held, with the current lienholder if there is an outstanding loan. Understanding state-specific requirements for title transfer, such as notarization or forms, is part of this preparation. Both parties also need government-issued identification to verify identities.

For the person looking to purchase the vehicle, financial information is a requirement for any new loan application. This includes income verification through recent pay stubs, tax returns, or bank statements, to demonstrate the ability to make payments. Lenders assess employment history, credit score information, and existing debt obligations to determine creditworthiness. Having these documents organized beforehand can expedite the process.

Transferring the Loan Through Refinancing

Refinancing represents one of the methods for transferring a car loan to another person, allowing the new individual to take on financial responsibility. This process involves the new borrower applying for and securing a new auto loan in their name, which then pays off the existing debt. This approach is common as direct transfers are generally not permitted.

The process begins with the new person applying for a new auto loan with a financial institution, such as a bank, credit union, or online lender. This application involves a credit check and a review of the borrower’s financial standing, including income and debt, to determine eligibility and loan terms. The lender assesses the applicant’s ability to repay the loan. If approved, a loan agreement with new terms and interest rates is provided.

Upon approval of the new loan, the new lender handles the payoff of the original loan directly. Funds from the new loan are sent to the original lender to clear the outstanding balance. This direct payment ensures the original loan is satisfied, a step before the vehicle’s title can be transferred. The original lender then releases their lien on the vehicle once the payment has cleared, which can take several business days.

After the original loan is paid off and the lien is released, the process of transferring the vehicle title occurs. The original lienholder sends a lien release document, electronically or by mail, to the state motor vehicle department. The title is then transferred from the original owner to the new owner, with the new lender becoming the new lienholder on the updated title. This step legally formalizes the new ownership and the new lender’s security interest.

The physical handover of the vehicle takes place once all financial and legal steps are completed. The new owner is then responsible for updating the vehicle’s registration and securing their own insurance policy. The new insurance policy must be in place before the vehicle is driven to protect both the new owner and lender.

Transferring the Loan Through a Private Sale

A private sale offers another method for transferring a car loan to another person, where the original owner sells the vehicle to the new individual, who then obtains their own financing or pays cash. This approach provides a separation of financial obligations and ownership. It is a straightforward transaction.

The process begins with the original owner and the new person agreeing upon a purchase price and the terms of sale. This agreement should reflect the vehicle’s fair market value and cover any outstanding loan balance. The agreed-upon price should be sufficient to cover the current owner’s loan payoff amount.

The new person obtains their own financing for the vehicle, which can be a new auto loan or a full cash payment. Once financing is secured, the buyer’s funds pay the original owner.

With the payment received, the original owner uses these funds to pay off their existing car loan. The original owner should obtain a 10-day payoff quote from their lender to ensure the exact amount, including accrued interest, is paid. Prompt payment ensures the lien is released efficiently, a step in transferring clear title to the new owner.

Once the original loan is paid off, the lender releases their lien on the vehicle. The lien release can be electronic or a physical document, depending on the state’s titling process. The original owner then receives a clear title and transfers it to the new owner, often requiring signatures from both parties, notarization, and submission to the state’s motor vehicle department. A bill of sale, detailing the transaction and purchase price, is a standard document and should be provided to the new owner. Sales tax may be applicable upon registration, depending on local regulations.