Assume a Car Loan

Both car owners and potential buyers can benefit from assuming a car loan. Buyers who can no longer make payments can find someone else who can. Potential buyers can get a car without having to make a down payment or paying other fees.[1] However, the lender must agree to the assumption of any loan. If you can’t get someone to assume your loan, then consider other options.

Steps

Applying to Assume a Loan

  1. Ask if someone can take over the loan. Not all lenders will let someone assume a car loan. For this reason, the person with the car loan should call up the lender and ask.[1]
  2. Pull you credit score. The person trying to assume the loan should check their credit. Your credit score will largely determine whether you can assume the loan and at what interest rate.[2] You can get you credit score in the following ways:[3]
    • Look on your credit card statement. Many credit card issuers provide free credit scores. Also look at your online account.
    • Use a free online service, such as Credit.com. Some online companies charge, so make sure to use only a free service.
    • Buy your FICO score from myfico.com.
    • Meet with a credit or housing counselor. They should be able to get your credit score for free.
  3. Complete an application. The person looking to assume the loan should fill out an application with the lender.[4] The application will ask for financial information, because the lender must be confident you can pay back the loan.
  4. Get a cosigner. Your credit might not be strong enough for the lender to approve you to assume the loan. In this situation, you might need someone to cosign for you. This means they will be responsible for the loan if you stop paying.
    • Of course, if you have a cosigner available, then you might not need to assume a loan. Instead, you can go get your own car loan directly.[1]
  5. Wait for approval. The approval time will vary. You might be approved immediately, or you might need to wait a couple weeks for a decision.[2] If you haven’t heard anything after a couple weeks, contact the lender to check.

Completing the Assumption

  1. Analyze the contract. Make sure you understand everything fully before signing the agreement. Pay particular attention to your monthly payment amount and the due date. Your first payment might be due very soon.[1]
    • Ask about anything you don’t understand and meet with a lawyer, if necessary.
    • You can obtain a referral to a lawyer by contacting your local or state bar association.[5]
  2. Sign paperwork. The buyer will sign their contract. The seller will need to sign paperwork to transfer the title and the bank’s lien to the new owner. The lien will stay on the car until the car loan is paid off entirely.[2]
  3. Obtain insurance. You can’t take possession of the car until you get insurance. Contact an insurance agent to find a policy and remember to provide the bank with proof of your insurance.[1] Try to get at least three quotes so that you know you’re getting a competitive rate.
    • If you’re the former owner of the car, then make sure to cancel your insurance policy.[2] There’s no reason to keep making payments.
  4. Register your new car. Car registration requirements differ somewhat depending on the state. Contact your state’s DMV to find out the process for transferring title and registering the car.[2] You will also have to pay applicable taxes and fees at the time of registration.
  5. Start making payments. Make timely payments each month, otherwise your car might be repossessed. If you find that you have problems making payments, call the lender and ask if they can help you.[1]

Considering Other Options

  1. Ask the lender if you can skip a payment. Many lenders are happy to let borrowers miss a payment and add the payment to the end of the loan. You’ll pay more in interest, but getting a little breathing room might be what you need to catch up on your loan.[6]
    • Find your lender’s contact information on your monthly statement.
    • Have a reason why you can’t make the payment. For example, you might have had a medical emergency that used up your extra money that month.
  2. Consider a balance transfer. You probably can’t refinance your loan unless you have excellent credit, and you probably don’t if you’ve missed payments before. However, you might benefit from a balance transfer. For example, you can move the balance of your loan to a credit card.[6]
    • This is a good option if you can pay off the loan before the promotional period ends on your balance transfer credit card. Most promotional periods last 12 months or less, after which the interest rate jumps.
    • Also moving installment loans (like car payments) to a credit card can hurt your credit score.
    • Nevertheless, using a balance transfer might allow you to keep your car.
  3. Tap a home equity line of credit. A home equity line of credit (HELOC) is like a credit card. You’re given a line of credit, and you make monthly payments while being charged interest on the balance. You might be able to move the balance of your car loan to a HELOC. This way, you can keep your car.
    • One huge pitfall is that you put your home at risk if you can’t make payments.[6] However, this might be less of a concern if you don’t owe much money.
    • Your HELOC’s interest rate is also variable, so you might pay more in interest than you would on the car loan. You should talk to a lender to see if HELOC interest rates would benefit you.
  4. Trade in your car. Buying a new car might be the last thing you want to do. However, it can benefit you if you trade in for a much cheaper car. Try to get the dealership to give you trade-in credit equal to the amount you have left on your loan. For example, if you owe $5,000 on the car, try to get the dealer to give you $5,000 in trade-in credit.
    • Also check the loan terms for your new car. Ideally, you’ll have a much lower monthly payment that you can afford.[6]
  5. Sell your car. If all else fails, you can still sell your car. You’ll need the lender’s permission to sell since they have a lien on the car, which can limit the pool of people willing to buy it. However, if you find a buyer, you can hold the sale at the bank where you have a loan. You’ll pay off the remainder of your loan, and the bank can transfer the title at the same time.[7]

Sources and Citations

  1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 http://www.loan.com/car-loans/the-basics-of-assuming-a-car-loan.html
  2. ↑ 2.0 2.1 2.2 2.3 2.4 http://www.dmv.org/buy-sell/auto-loans/taking-over-an-auto-loan.php
  3. ↑ https://www.consumerfinance.gov/askcfpb/316/where-can-i-get-my-credit-score.html
  4. ↑ http://blog.credit.com/2015/07/can-i-get-someone-to-take-over-my-car-payments-121844/
  5. ↑ https://shop.americanbar.org/ebus/abagroups/divisionforbarservices/barassociationdirectories/statelocalbarassociations.aspx
  6. ↑ 6.0 6.1 6.2 6.3 https://www.clearpoint.org/blog/cant-make-your-car-payments-try-these-strategies/
  7. ↑ https://www.moneyunder30.com/sell-your-car-with-payments-left
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