Can Anyone Take Over Payments on a Car Loan?

by Timothea Xi

It's not possible for a person to assume another person's car loan, according to online car-buying service Cars Direct. Nor is it advisable for a buyer to simply pay your lender on your behalf, because you are still on the hook for the loan and any payment lapses go on your credit, not the buyer's. That said, you have several options for simulating a loan transfer that allow you to free yourself from your loan while handing over the auto to a new owner.

Modify or Get a New Car Loan

As personal finance website Financial Web notes, you can take two different paths in handing over your car -- and the loan payments that go with it -- to a different party. One path may be more beneficial than another for you or the new borrower.

Modified loan. With this route, you contact your lender and say you are selling your car to someone else. Subject to the lender's approval of the new person's creditworthiness, the loan is rewritten with the new person as the borrower. You might have to pay additional processing fees and an early payoff charge, so go over the figures with your lender and, if necessary, consult with your attorney about the legal ramifications.

Tip

  • Loans.org recommends requesting that the lender confirm in writing that the obligation of the loan has been transferred.

Private party or person-to-person auto loan. To obtain this type of loan, you must follow a similar loan process as for a dealership loan, except you are dealing with lenders who specialize in private loans to finance the purchase of used cars from private owners. Websites such as CarLoan2 offer a centralized service where you can compare quotes from different private party lenders. Loan rates tend to be higher for this type of loan than conventional loans; however, interest rates also depend on the borrower's credit.

Meet Car Loan Requirements

While the logistics of the new borrower acquiring a new loan may not seem to be your responsibility, the ability of the new owner to obtain a loan impacts how quickly you can get out of your own loan. Furthermore, if the new owner is a family member who may not be financially ready to pay down a large debt, the new car loan could impose undue hardship on him. So the new borrower must have financial means and equal or better credit than you do.

The new borrower should be able to meet these standard car loan requirements by furnishing the following documents:

  • Proof of residence
  • Proof of identity
  • Proof of income¬†
  • Proof of insurance

Additionally, the new borrower needs:

  • Credit rating -- preferably a good one, to obtain the lowest interest rates
  • Down payment¬†

Once you secure a new or modified loan, you and the new owner must appear at a Department of Motor Vehicles office with your drivers' licenses to change the title on the car to reflect the new ownership. Write up a bill of sale to facilitate this process.

Tip

  • Once you've transferred ownership, cancel your existing car insurance policy with your insurance company. The new owner should obtain his own insurance for the car. If you will continue to drive the car, the new owner should add you to his policy.

About the Author

Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.