How to Transfer an Auto Loan to Another Person
Understand the nuanced approaches to changing auto loan responsibility. Get practical steps for managing your vehicle financing.
Transferring an auto loan involves distinct financial and legal pathways, as it is not a single, universally applicable process. This involves changing responsibility for a vehicle’s financing or resolving an existing loan to facilitate new ownership. Understanding these approaches is crucial for anyone considering such a change. Each method carries specific requirements and implications for both the original borrower and any new parties involved.
Types of Auto Loan Transfers
When considering how to transfer an auto loan, recognize that a direct assumption of an existing auto loan by a new individual is rare. Most mainstream lenders do not permit direct transfers due to concerns about ownership clarity, title issues, and liability. Lender contracts typically prohibit such transfers, and states generally do not allow vehicle sales with existing liens unless satisfied.
Instead, “transferring an auto loan” usually involves one of two primary methods: refinancing the loan or selling the vehicle with an outstanding loan. Refinancing entails obtaining a new loan, often from a different lender, to pay off the current loan, with the original borrower remaining responsible for the new financing. Conversely, selling a vehicle with an outstanding loan means the new buyer secures their own financing or pays cash, which then allows the original loan to be paid off and the vehicle’s title to be transferred. While some specialized situations, like private lenders or family arrangements, might allow loan assumption, these are uncommon and typically involve the new party applying for a new loan.
Refinancing Your Auto Loan
Refinancing an auto loan can adjust your loan terms, potentially securing a lower interest rate or a more manageable monthly payment. The process begins with gathering specific financial and vehicle information. You will need your current loan balance, interest rate, and lender name, found on your statement or by contacting them. Also, have your vehicle’s VIN, current mileage, make, model, and year available.
Personal financial standing is also a factor in eligibility. Lenders will assess your credit score, income, and employment history to determine your creditworthiness. A credit score in the “good” to “very good” range (generally above 660-670) often unlocks more favorable interest rates. Lenders also consider vehicle age and mileage, often requiring vehicles to be less than 10-13 years old and have fewer than 100,000-150,000 miles. The remaining loan balance and loan-to-value (LTV) ratio (loan amount to vehicle value) are also evaluated, with an LTV below 125% preferred.
After gathering this information, research and compare multiple lenders, including banks, credit unions, and online lenders. Many lenders offer pre-approval processes that allow you to see potential rates and terms without significantly impacting your credit score. After comparing offers, apply for the new loan, submitting proof of income, identification, and current loan details. Upon approval, review the final loan offer, including the new interest rate, loan term, and any associated fees.
After acceptance, sign the new loan documents, obligating you to the new lender. The new lender will then handle the payoff of your old loan directly with your previous lender. After the original loan is paid off, the previous lienholder will release the lien on your vehicle’s title. This process typically takes 3-10 business days for the lender to process the lien release. The state motor vehicle department may take an additional 2-6 weeks to update or mail a new title.
You should receive confirmation that your old loan is closed and details on title handling, often with the new lender listed as lienholder until repayment.
Selling a Vehicle with an Outstanding Loan
Selling a vehicle with an outstanding loan requires careful coordination to ensure the loan is satisfied and the title can be transferred. The first preparatory step involves obtaining an exact payoff amount from your current lender. This figure includes the principal balance, accrued interest, and any fees, and is usually valid for a limited period (often 10 days). Your lender, as the lienholder, holds the vehicle’s title until the loan is fully repaid.
Accurately valuing your vehicle is important before listing it. Online resources such as Kelley Blue Book or Edmunds provide estimated values based on the vehicle’s condition, mileage, and features. Preparing the vehicle for sale, including cleaning, minor repairs, and organizing maintenance records, can enhance its appeal and value.
Once you find a buyer and negotiate a sale price, the procedural steps vary based on how the buyer intends to pay. If the buyer pays cash, they will provide the agreed-upon funds directly to you. You must then immediately use these funds to pay off your outstanding loan with your lender. After the loan is satisfied, your lender will release their lien on the vehicle’s title.
The original lender typically sends the title or a lien release document to you or the Department of Motor Vehicles (DMV). You then work with the buyer to formally transfer ownership by signing the title and necessary documents, such as a bill of sale and odometer disclosure statement. If the buyer is financing the purchase, their new lender will typically pay off your original loan directly. Your original lender will then release the lien, and the title will be transferred to the buyer, often with their new lender listed as the lienholder.