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Whether you no longer need your car or want to get rid of your car payments, you may have considered refinancing your car loan to someone else. But is this even possible?
Let’s take a closer look at the process required to get rid of your car loan and transfer ownership to another person.
It’s possible to refinance your car into someone else’s name, but the process is typically quite involved and requires more than a few steps to complete. If you no longer want to keep your vehicle and you find someone else who is willing to refinance it in their name, you are still obligated to repay the outstanding loan balance. The loan cannot simply be transferred over from one person to another.
Essentially, you will need to go through the process of selling the car to the new buyer, who will also take out a loan in their name. Once the buyer has been approved for a car loan, the title of the vehicle can be transferred. However, your original auto loan must first be fully repaid, either by you or the person buying your car in order for you to be relieved of your car loan obligations.
To refinance your car into someone else’s name, you’ll have to go through a few steps:
When adding a cosigner to the auto loan, the lender will assess their financial health and creditworthiness. If approved, the cosigner’s name will be added to the title of the car loan.
You could stop at this point if the goal is to lower your car payments or improve your credit score. Otherwise, you can continue by taking the next step.
To take your name off the title and the loan, you’ll need to refinance once more. That said, there is a risk that the new lender may not approve your loan application. This can happen if there wasn’t enough time since the car was previously refinanced or if the person applying has bad credit or a low income.
Keep in mind that while these options are available, refinancing a car under someone else’s name might not always work.
An “upside down” car loan refers to negative equity in the vehicle. In other words, you owe more on your outstanding car loan balance than what the car is currently worth.
The question is, can you refinance a car loan that’s upside down?
Many lenders may not be willing to get involved in a refinancing of an upside down car loan, but some will. You’ll have better luck with alternative lenders than with traditional banks in this regard.
To calculate the negative equity in your car loan, look up how much your vehicle is currently worth. You can do this by conducting a quick online search and checking the sale value of cars that are similar to yours. Then, find out how much you owe on your car loan and subtract that amount from the car’s estimated value.
For instance, if your car is worth $10,000 but you owe $13,000 on your loan, you have a negative equity of $3,000.
If you can refinance your loan at a lower rate than what you’re currently paying, you may be able to turn that negative equity into positive equity much faster.
Check out how you can reduce your car’s depreciation.
There are other options that you might want to consider besides transferring your car loan to someone else, especially if you’re looking to free up your finances:
A person who is willing to take over ownership of your vehicle can simply apply for their own car loan in their name, and use that money to finance the car purchase from you. Their lender will pay your lender off directly, or give the funds to the buyer who can then pay you for the car. This will effectively pay off your car loan and relieve yourself of ownership.
Having a cosigner on your loan who has a strong credit profile can help reduce your loan payments, as their affiliation with the loan may reduce the lender’s risk. In turn, the lender may be willing to offer you a lower interest rate, making your car loan more affordable.
If you want to lower your car loan payments without giving up your car, refinancing on your own without involving anyone else may be useful. If you have a good amount of equity on your car or have improved your credit score since you first took out the loan, you may qualify for a lower interest rate.
If you’re looking to upgrade your car, you can trade in your current vehicle and use the proceeds towards the purchase of a new vehicle. This is a good option if you are unable to refinance your car loan.
Before going through the process of finding a buyer to take over your car, keep the following tips in mind:
Whatever your reason may be to want to refinance your car loan, it ultimately requires that you sell your car to another person. The buyer would have to get approved for their own car loan, then take over ownership. You can’t just remove yourself from a car loan and add someone else to it.
Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.
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