This week we’re discussing situations some borrowers find themselves in that present a challenge managing the day to day. Today, we’re covering how to prevent missing loan payments by transferring a car loan to someone else.
If you are in financial trouble or think you’re going to have genuine issues affording your car loan repayments, you can transfer a car loan.
It isn’t the only option though. You could also consider refinancing the loan, selling the car, taking a payment holiday or extending the car loan. The option you choose should be the option that best suits your circumstances.
Today we’ll cover how to transfer a car loan in Canada.
How to Transfer a Car Loan
To transfer a loan, you have to agree it first with the person you’re transferring it to and the lender. Not all lenders will accept a loan transfer and will prefer you to refinance or settle the loan instead.
Those lenders that do accept transfers will need to be convinced of the reason and that if you don’t transfer, you stand a good chance of defaulting on the loan. If you can convince them of that, you’re good to go.
The Loan Transferee
For this to work, you need to find someone willing to take on your car loan. This would typically be a partner, parent or sibling but can theoretically be anyone in good financial standing.
The person will need to have a good credit score and be able to afford the loan. The transfer process will usually go through similar checks you did when you applied.
That means a credit score check, affordability check, documentation check and so on. As long as everything is in order, the lender will take care of the paperwork send it to you both for signing.
Once you sign on the line, the loan becomes the responsibility of the other person and you are free and clear.
The new borrower will need to make regular payments and will have all the same responsibilities we all have with auto loans like paying on time and settling the loan in full.
Do You Need to Transfer a Car Loan?
Transferring your auto loan is not your only option. You may find it better to refinance the loan if you’re a year or more into it. You can also sell the car and buy something cheaper with what’s left over after settling the loan or you could look at other remedies.
If your situation looks temporary, like being furloughed or losing your job, you may be better off requesting a payment holiday. They are for between 3 and 6 months and will simply add the time on to the end of the loan. You will still accrue interest during the period but you won’t have to pay it until the end.
Whatever you end up doing, just make sure to look at all your option and discuss them with people you trust or your lender before taking action.
Other options for managing an auto loan
Not all lenders will accept a transfer. If your lender is one of those, you still have options if you’re having trouble making payments.
Refinance the auto loan: Refinancing means getting a new cheaper loan to pay off your existing one. This works best if your original loan is expensive, a bad credit car loan or over a shorter term with higher payments.
Sell the car: If you have paid enough of the loan off to have equity, you could always sell the car and pay off the loan. This would leave you without a car but would also leave you without a car payment.
Trade the car in for a cheaper model: If you drive a premium car, you could trade it in for a much cheaper model. This is useful if you have enough equity in the car to be able to pay the loan and leave enough for a cash payment for a replacement or a much smaller loan.
Discuss the situation with the lender: Most lenders will work with borrowers who deal with them in good faith. If you discuss your situation with your lender before you get into real trouble or miss a payment, they may have another solution that could work better.
It’s always worth discussing it with the lender as they can be surprisingly helpful.
Hopefully this helps you transfer a car loan to someone else. If you have any more questions about transferring car loans, please contact us here!
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