Financing a vehicle isn’t cheap, and refinancing is a great way to get a better rate on a car loan. Another thing refinancing can do is allow you to add or remove someone from an auto loan. But can someone take over your car loan?
Can You Refinance a Car Loan to Another Person?
There’s no such thing as transferring an auto loan, and while someone can’t technically “take over” it, ownership can be switched if someone else finances the vehicle.
While refinancing a car loan can remove a cosigner or co-borrower, you can’t refinance the car in someone else’s name and remove your name from the title. This can only be done by selling the vehicle.
To do this, the new owner needs to find a lender to work with, get approved for a loan, sign the loan documents, receive a release of lien letter, and have the title transferred at their local DMV office. Where they could run into problems is if they don’t qualify for financing.
Your Buyer and Financing
Whoever plans on purchasing the car needs to go through the auto financing process. Your buyer needs to find a lender that can approve them for a car loan. Before they discuss things with a lender, make sure your buyer does these three things:
- Check credit score and history – The higher their credit score, the more likely it is they can get approved. Auto lenders generally look at an applicant's FICO score, so the buyer should, too. The buyer can get their FICO score in a number of ways, such as paying a fee directly to a credit bureau or FICO. It may also be possible to get it for free. For example, certain credit card providers give their cardholders complimentary access to their FICO scores. As for credit reports, the buyer can go to www.annualcreditreport.com and get one free copy from each of the three major credit bureaus each week until April of 2022. Typically you're only allowed one copy from each bureau every 12 months.
- Have the proper documents ready – Borrowers typically need to bring in proof of income with a recent pay stub and a valid driver’s license. If their credit is less than perfect, they may need to bring in additional information.
- Rate shop with different lenders – Once all of the documents are ready and your buyer knows where their credit stands, they can check out what different lenders can offer them by getting multiple quotes, known as rate shopping. If rate shopping is done within a given time frame (usually 14 days), all hard inquiries on their credit reports only count against their credit score as a single inquiry.
Once your buyer has a lender in mind, you can start to prepare for the sale of your vehicle.
What You Need to Prepare For
If you still owe on the vehicle that’s going to be sold, there are a few things you should do to prepare for the sale to the new owner.
First, you need to find out the payoff amount on your car. Contact your lender and request a 10-day payoff amount. The total will include the current balance plus 10 days of interest charges to allow time for the payoff check to clear.
Next, estimate the actual cash value (ACV) of your vehicle. This can be done at various online valuation services, such as Kelley Blue Book or NADAguides. Compare this estimated ACV to your payoff amount. If your payoff amount is more than the ACV, you have equity; if the opposite is true, you have negative equity.
If you have equity, this means that, depending on what you sell your car for, you may walk away from the sale with some leftover cash. If you sell your vehicle for less than the payoff amount, you must pay the difference to your lender in order to remove the lien from the title and move forward with the sale of the car.
Once you receive the release of lien letter, you give it to the buyer, along with the signed title, which enables the buyer to transfer the title at a DMV or Secretary of State office, depending on your state. The buyer then pays title and registration fees and plates the vehicle. If your buyer is financing the car, they also need to have full coverage auto insurance.
The Bottom Line
You can’t simply remove yourself from an auto loan and add someone else to it. Instead, someone interested in taking over your car loan needs to go through the financing process with a lender – if they aren’t paying in cash – in order to close out the existing loan and finance the vehicle with a new loan.
If you’re selling your car to someone else and you need an auto loan, we want to help. At Auto Credit Express, we’re connected with dealerships across the nation that specialize in helping consumers dealing with imperfect credit get financing. Get the process started right now by completing our car loan request form!