Car payments can be expensive on any budget. If your payments are larger than your budget can bear, have a higher interest rate or you simply want to get out from under your payment, there are numerous options to consider that provide relief. One such option is trying to refinance your car into someone else's name. Here are some things to keep in mind if you want to transfer an auto loan to someone else.
Why Would You Want to Refinance Your Car Into Someone Else's Name?
Refinancing your auto loan provides many benefits. Through a refinance, you can potentially lower your interest rate or lower your overall payment to ease the budgetary burden. This solution helps if you intend to keep the car, but not if you intend to sell it.
If you intend to sell your car, you may be tempted to simply ask the new owner to take over your car payments. This is not an option you want to consider as it opens you up to significant risk. Knowing that, you may want to pursue refinancing your car into the new owner's name.
It's not as far-fetched as it seems; visit your lender's office and ask them to transfer the auto loan. Realize that while requirements vary from lender to lender, there are generally two key ways you can refinance your car into someone else's name.
Modify with Your Current Lender
Modifying directly with your current lender is one of the top options to transfer an auto loan. According to Financial Web, think of this as similar to when you trade-in a car. The entire loan is transferred out of your name, appearing as if you never took out the loan.
This is a benefit to you as there is likely few to no penalties to you but it also means the new person taking on the loan benefits from your good standing on the loan, not to mention the entirety of the loan. The other thing to keep in mind is that the new borrower will need to have a credit standing at least as good as yours, if not better for it to work. In short, the new borrower must be creditworthy, or it's not an option.
Choose a New Lender
If you'd rather not refinance the loan directly with the current lender, the other option to refinance your car into someone else's name is by choosing a new lender. The new lender would pay off the remaining balance and issue a reduced loan to the new borrower.
This is generally more beneficial to the new borrower as they get a smaller loan and likely a lower interest rate, along with a lower overall payment. You may potentially face a prepayment penalty as a result, as well as other potential penalties.
Other Things to Keep in Mind
Refinancing your car into someone else's name doesn't stop with handling the actual loan. You must also transfer the title to the new owner. The requirements to do so vary by state. Do your research ahead of time on what your state requires and ask your lender, too, as lenders often have insight into how to transfer loans into other holder's names. You will also want to make sure the lender changes the lien holder if you go through a new lender.
If you're considering transferring an auto loan you want to keep other options in mind as well. You can research refinance rates online to find lower rates if you want to keep the car in your name. You can also protect against such a problem in the future by making a wise car purchase that fits in your budget.
It is possible to refinance your car into someone else's name, but there are many things to keep in mind. Do your due diligence and know your options to put yourself in the best situation possible.