Can I transfer my car loan to another person?

If you take out a loan to purchase a car, then you are making an agreement to repay that loan, typically with interest attached, until the balance has been paid off in full.

But if you want to sell the car before the end of your loan, (be that because your circumstances have changed, you want to purchase a different car, or you simply no longer need a car) what options are available to you?

Can you transfer a car loan to someone else?

It’s generally not possible to transfer the balance of your car loan to someone else. This is because lenders are bound by responsible lending laws, meaning that before they agree to loan an amount of money to someone, they must conduct an assessment of that person’s finances and capacity to repay the loan, and make sure that the repayment terms are suitable for that person’s financial situation.

While a lender may have been willing to approve you for a car loan, this doesn’t mean they would be willing to approve the person that you wish to transfer your loan to.

If you’re struggling with your loan repayments, refinancing your car loan may be an option worth considering.

Generally speaking, if you plan on selling or buying a car that is under finance, a private arrangement between you and the prospective buyer or seller may be a more suitable pathway—although there are a number of risks of which you need to be aware.

Can you transfer a car loan to another vehicle?

When you take out finance for a car, you agree to use the funds to buy a specific vehicle. Once you’ve bought the vehicle and the loan arrangement has begun, the vehicle becomes tied to that particular loan—even if you were to refinance. This means you are unable to move the loan to a different vehicle, until it is completely paid off. If you want more flexibility in changing vehicles over time, then car leasing may be worth considering.

Can you sell your car with money owing?

You can sell or trade-in your car with money owing on it, and this will likely be easier for you than attempting to transfer the balance of your car loan to somebody else.

What are your options for selling a car that’s under finance?

If you’re looking to sell your car while it is still under finance, then you generally have a couple of potential options, including:

• Repaying the balance of the loan yourself then selling the car, or

• Find a buyer who is willing to pay off the loan balance upon transfer of ownership.

You will also need to consider the kind of loan you have, and whether it is secured or unsecured. The selling process may be more complex if you have a secured car loan you’d like to transfer. This is because a secured loan has collateral involved, and the interest rate that’s payable has been calculated in light of this. The vehicle itself is often the security that gives a lender peace of mind they can recoup their loaned money, often by selling the car, if the loan repayments aren’t met.

CarsGuide says when a car forms the basis of a secured loan, the “outstanding balance will always apply against the car”, which is known as an encumbrance.

Pay off the balance of your loan and then sell the car

If you have enough money in savings to pay off the balance of your car loan and you want to do this before selling, you then may find it easier to find a buyer. The reason for this is that the car will not be unencumbered by any loans, and the buyer can pay you directly, making the transaction more convenient for them.

But if you choose to do this, it’s important to be aware that there can be costs associated with paying off a car loan early. While some lenders charge no early repayment fees, others will require you to pay a fee to make up for the interest that they will not make on the loan. The size of these fees can vary, but it’s important to find out from your lender whether you will be charged one.

Find a buyer who is willing to pay off the balance of your loan

If you do not have the funds to pay off the balance of your car loan or do not wish to do so, you may be able to find a buyer who is willing to pay off the balance of the loan.

You will need to be transparent with them that this is your arrangement and that the car they are buying is still under finance, and that you will use the money from the sale to pay off the loan.

You will also need to take into account any early repayment or other fees the lender will charge.

This option can be riskier from a purchaser’s point of view, because of how car financing works, particularly with secured car loans. When you take out a secured car loan, the car itself is typically ‘security’ or collateral against the loan, meaning that the lender has the right to repossess it if you cannot make your required repayments.

If you sell the car to someone else, and you do not pay off the balance of the loan as you’ve promised, then the new buyer faces having their car repossessed.

As a purchaser, if you want added protection when buying a car that is under finance, Macquarie Bank recommends asking the seller to obtain a dated payout quote or letter from their lender, and have this letter sent to you.

This way, you can pay off the balance of the money owing directly, and make a separate payment to the seller for any money that’s left owing. This means you will have the peace of mind of knowing that the car’s finance provider has been paid off.

Overall, given the potential risks involved in purchasing a car under finance, this option may be less attractive to potential buyers, and you may find it hard to sell your car in this way.

On the other hand, if your car loan is unsecured, then you will be responsible for repaying the balance should you fall behind in your repayments, and the lender will not have the right to repossess the car. This means that the potential buyer will not have to worry about their car being repossessed, should you not meet the required repayments to your lender.

What should you do when selling a car that’s under finance?

If you are planning on selling your car when under finance, here’s a checklist with steps to consider taking:

1. Contact your lender. Advise them you want to sell your car and find out the amount of money you still have owing, as well as any fees you may be charged for paying off the balance of your loan early.
2. Find a buyer for your car and be transparent with them. If you have paid off the balance of your loan with your lender, then they will be purchasing it without any encumbrance. Otherwise, let them know that the car is still under finance and make arrangements for the balance of the loan to be paid off.
3. Finalise the sale of your car and arrange the necessary transfer of funds. If you still have money owing on your loan, then pay this off with the money you receive from the buyer, as well as any fees that are owing, if this is what has been agreed.
4. Transfer the ownership of the vehicle and lodge a notice of disposal. This confirms that you are no longer the owner of the car. At this point, it will be the new owner’s responsibility to register the car in their name.

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