How to transfer a car loan to another person

A car is a major purchase that requires most people to take out some form of financing. An auto loan can help someone get behind the wheel of a car, but what happens if that loan becomes unsustainable for them? Is it possible for someone else to take on that obligation? Let’s look at how to transfer a car loan to another person, as well as some other strategies to manage your loan.

Although Chase does not offer auto loan transfers, we'll cover some of the steps that may be needed to transfer an auto loan, as well as some alternatives, so you can determine what the best option might be for you.

Can you transfer a car loan to someone else?

The short answer? It’s unlikely. Most loan contracts typically don’t allow for transfers, and mainstream lenders generally refuse such a request. There are two main reasons most lenders won’t do a person-to-person transfer of a car loan:

• When one person is still driving the car, but another person takes on full financial responsibility for it, it’s hard to clearly define ownership. That means it would start to get a little messy sorting out important paperwork like titles and lien registrations.
• For similar reasons as above, there are also serious implications in terms of insurance and liability. This poses a serious risk to all parties involved.

It may, on occasion, be possible to directly transfer a loan if it came from a private lender and there is a high level of trust between all parties. This is a rare and unique circumstance, however, and likely won’t apply to many situations.

How do you transfer a car loan to someone else?

In most cases, when people talk about transferring a loan, it essentially refers to selling a car and the new owner applying for new financing, at which point that new owner would assume legal ownership of the car. Though not all lenders offer financing for car sales between private parties, here are a few broad steps to consider to address the difficulty in transferring a loan:

1. Contact the lender

In general, you’ll have to close out your own loan balance. If you have the cash available to do this, great! If not, you’ll pay off the current lender with proceeds from the new borrower’s loan. Note: at this time it’s helpful to double-check with relevant authorities before finalizing a purchase to determine any requirements such as taxes, fees, registration, etc.

2. File new paperwork

Once you and the borrower have agreed on a selling price for the car, it’s time for the borrower to submit an application for a new loan. The borrower will have to undergo a standard credit check and be approved for a new loan based on their credit.

3. Update title and insurance

Once the new loan is approved, it’s time to transfer the title to the new owner. Depending on your state’s regulations, the title may go to the lender instead of the new owner. Updating the title typically requires a trip to the DMV with valid IDs and the bill of sale information pertaining to the sale. Of course, the new owner will also need insurance on the car in order to keep it on the road.

Alternatives to transferring a car loan

If you feel like a loan transfer through the sale of your vehicle to another person isn’t the right choice for you, here are some alternative strategies to consider instead. 

Sell your car to a retailer

This is one of the most common ways to resolve an unwanted car loan. Selling the vehicle to a retailer can help you avoid the transfer process. It also gives you a potentially much-needed infusion of cash.

Refinance your loan

If you want to keep the car but you’re simply looking to relieve some of your financial stress, refinancing your loan may be an option to consider. Refinancing can potentially lower your interest rate or extend your loan term in order to decrease the size of your monthly payments.

Request a deferment

Depending on the lender, you may be able to ask for and acquire a deferment for a defined period. Bear in mind that interest will typically continue to accrue on deferred payments, and you will need to resume payment at some point.

In summary

Most car loans can’t be assumed by someone else. When you're figuring out how to transfer a car loan to another person, it’s important to understand that it's typically seen as a big risk by most lenders. There are other strategies that you may consider when looking for help managing your car loan.