If you need a new car and do not want to hassle with an entirely new car loan, an option may be assuming a car loan. Before you can assume a car loan, you must first have the vehicle’s owner contact the finance company to make sure they allow someone to assume the loan. There are some lenders who do not allow people to assume loans, and if this is the case, the owner will have to sell you the car outright.
The lender will pull a credit report. One of the major benefits of assuming a car loan is that you do not have to pay a down payment and various other fees involved with the initial finance of a vehicle. Because of the reduced fees, the lender will want to be sure you have the income to handle making the monthly payments.
After pulling a credit report, the lender will assess whether or not you are approved to assume the car loan. The lender will examine your monthly income and debts closely to determine whether you can make your payments. If you are not approved to assume the car loan, you may be able to offer some collateral in order to assume the loan. Once you are approved to assume the loan, you will receive a new loan agreement from the lender.
When you get the new loan agreement, pay close attention to the terms. Make sure you agree with everything before you sign it. Remember that the payment amounts and due dates probably will not change even though you are assuming the loan. This may mean that your next payment is due very soon. Sign the agreement only when you know you understand and agree with everything in it. If you have any questions about, contact either the finance company or your lawyer.
Before you can take ownership of the car, you will need to be able to show that you have full coverage auto insurance to cover the vehicle in the event of any accident until the loan has been paid in full. Secure your full coverage with the required deductibles with the company of your choice and provide this proof to the finance company. Be sure to get at least three quotes before deciding on any insurance policy so that use the best rate.
Begin Making Payments
When you have signed the loan agreement, you will need to start making payments right away. Make the payments according to the agreement, until the vehicle is paid in full. If you experience difficulty making payments, keep the finance company aware of the situation to avoid any negative impact on your credit rating.
For those who do not have the funds to purchase a car directly from a dealership, taking over the payments on a vehicle is another viable method. If credit is an issue, you may not be able to assume the loan. A cosigner may be an option, but having a cosigner on hand would also increase the chance of being able to go directly to a dealer.
If you would like to take over payments on an auto loan, you should consider whether you are also taking over ownership of the car. These two items are handled separately. You will have to go through one process to gain ownership of the loan and another process to gain ownership of the car. Ensure you do both to prevent losing the asset you are making payments for.
Taking Over an Auto Loan
You will have to primary options to take over an auto loan. The first is to modify the loan directly with the lender, and the second is to take out a wholly new loan for the asset to pay off the existing debt. The decision will depend on your credit situation and the desires of the current debt holder.
- Taking over an existing loan is easiest if your credit is as good as the existing debtor. The person listed on the loan will have to contact the lender and ask for the modification. You will then submit your application to be approved for the loan take over. Terms may change with the modification. This is also the best option if the current debtor is worried about a credit score drop.
- If your credit is worse than the existing debtor, then you may have to seek a separate loan. The current lender may not approve you, and it is even possible you will need a high risk auto loan. You can then use this loan to pay off the existing. This option will hurt the current debtor’s credit more.
Taking Over a Car Title
Just because you pay a loan off does not mean you legally own the title to a car. A car’s title is the official record of ownership handled through the state’s Department of Motor Vehicles. A loan is simply the record of debt on file with a private lender. In order to change a title, the previous owner will have to sign over a title to you. This can be done two ways.
- If your state issues titles with a spot to list the sale of the vehicle on the back, then you can use this area to make sure the title is signed over to you. If so, you can avoid the bill of sale process in the next option.
- Secure a bill of sale from the DMV. List the purchase price and the new owner of the vehicle. If you are simply taking over the car as a gift, the purchase price listed can be $0.
Once the sale is handled, both parties must sign the title to have the car officially handed over to the new owner. In some states, you will have to do this part in front of a notary. Make sure to follow these steps as the new owner. If not, the previous owners can claim a legal right to the vehicle despite the fact you took over the loan and made payments for months or even years.
Emily Delbridge is an authority on car insurance and loans who contributed to The Balance for nine years. Delbridge is a licensed Personal Lines Insurance Agent who has been in the insurance business since 2005. Since joining the industry, she has significantly contributed to the book of business for independent agency, Great Michigan Insurance.
You are at the end of your rope: you bought a fancy car when you were making lots of money, but six months ago you lost your job and are now way behind on your car loan payments. A relative offers to cover your car payments while you catch up. Or perhaps you have a friend with really terrible credit but good income and a car sitting in their driveway just waiting to get some more use. You want to let him cover the costs of your car payments in exchange for letting him drive the car.
In all of these cases, you may be wondering: can someone take over my car loan?
The Short and Sad of It
The short answer that you are not going to like: No.
“In most cases, car loans are not assumable,” Edmunds.com Senior Consumer Advice Editor Philip Reed told Credit.com. “When the registration and title are transferred to a new owner, the lender needs to be notified. The lender will then step in and require a credit check to make sure the new owner can make the payments. This leads to the initiation of a new loan at the new owner’s credit level.”
Some banks will confirm this, while others might be able to work with the old and new owners to figure something out. In the latter case, the new payer of the car payments, so to speak, would still need to go through all of the hoops as if they were getting the car loan in their own name from the outset.
Letting Them Drive It, Too
It is one thing to let a friend or family member cover your payments for a few months while you get on the right foot — you can probably accomplish this without too much trouble. But what if you’re interested in having someone else behind the wheel of your vehicle as well?
Entrusting your vehicle, and all of the costs and maintenance associated with it, to a stranger is a pretty risky business.
Even if you were to sell your vehicle to the other person instead of simply drawing up an agreement to let them drive the vehicle and cover the payments on the loan, if you have a car loan, you’re not the sole owner of the vehicle: you’ll have to get the permission of your lender before you sell your car. You will still, however, likely come out ahead if you sell the vehicle yourself rather than letting your overdue payments stack up and letting your car get repossessed. Remember: defaulting on your loan or getting your car repossessed is not just a hassle for you and your credit score — it is a hassle for the lender as well who has to chase you down! 99 times out of one hundred, the lender would rather discuss alternative payment options than having to default on your loan.
Can’t You Just Ignore the Bank and Go Rogue?
You could just form a gentlemen’s (or gentlewoman’s) agreement with someone and let them drive the car if they’ll agree to regularly pay you and you’ll continue to make the payments on the vehicle with their money. But what happens if they don’t pay up?
In essence, you will be a repo man for your own car, with no force of law to back you up. Depending on your insurance, if the driver is in an accident and they are not listed as one of the authorized driver’s on your policy, you could be out for a ton of money if they are in a bad accident. You’ll also be responsible for any unpaid parking tickets and tolls that they may rack up in your vehicle.
How to Sign Over Your Loan to Another Person, the Proper Way
If you decide to go ahead with your plan to have someone else take over your auto loan, there are several steps you must take:
Read the Fine Print of the Loan
It’s important to be armed with the facts before you ever sit across the table from a formidable banker or loan advisor. Read your loan agreement. Read it again. Perhaps consult a trusted legal advisor who specializes in contract law. It may be easier in most cases to sell your car or trade it in for a cheaper vehicle and adjust the loan to a manageable payment size.
Find Out the Potential New Lessee’s Credit Score
It is crucial that you know what you are working with before you contact your financial institution. A credit score is the most crucial factor that financial institutions use to determine someone’s financial risk and creditworthiness for a good reason — this is the best tool at their disposal to figure out the chances they’ll ever get the money they loaned the other person back. If the new potential lessee has bad credit, it’s going to be a tough sell to your bank.
Contact Your Lender
The person whose name is currently on the car loan needs to contact their bank or other financial institution before anything else can happen. Ask about the policies on auto loan transfers. This is the step at which most banks will tell you it’s against your contract to do so. If this is the case, ask about refinancing the auto loan in the interested party’s name.
Wait for Loan Approval
If you are incredibly lucky, your bank or other lenders will let you apply for loan approval. This could take anywhere from a few minutes while you wait in the office to a few weeks.
If the loan takeover is approved, you can proceed with next steps. If not, you’re back to square one.
Sign the Papers!
If your loan takeover agreement is approved, you will have to sign many a document. This will include forms to sign over the lien and the car’s title in most cases. You will also need to remove the vehicle from your own auto insurance policy. You may need to contact the DMV for assistance with title and registration transfer policies. The new owner of the car will need to take out car insurance based on their own state requirements.
Are you looking for a way to purchase a vehicle with either no credit or bad credit? There a few options available to purchase a car without perfect credit. Red Mountain Funding specializes in a variety of lending options for those who may not qualify for a traditional auto loan. One of those options that may not be well known is assuming the car loan of another individual.
This process may seem difficult without the proper guidance. Many traditional lenders will not allow you to take over car payments. That is where Red Mountain Funding can help you. We work to connect people with assumable auto loans and help with the necessary paperwork to protect both you and the current owner of the vehicle.
What Does Taking Over a Car Loan Mean?
You may have heard about this type of transaction and wondered exactly what it is. When a person finances a car and is unable to continue making payments or driving the vehicle for several reasons including loss of income or even military service that takes them overseas, they may not be able to sell the vehicle for what they owe on the loan. In these cases, they will look for someone who is willing to assume the payments until the loan is paid off. Once the loan is paid off, the person who assumed the loan will then be given the title to the vehicle by the original owner.
Where to Find Assumable Auto Loans
You may find several local listings to take over car payments on Craigslist. Before you make an agreement with an individual, you should contact Red Mountain Funding to help you with the paperwork involved. They will meet with you and the current loan holder to work out the details and ensure that both parties are protected in the deal. It is important to use a third party in these arrangements for your protection.
It is important to get all the details of the arrangement in writing including the loan term, payment amount, how payments will be made, and how insurance will be handled. Remember, a financed car needs insurance coverage that meets the requirements of the original lender until it is fully paid off. Most lenders require a vehicle to have full coverage until the final payment is made.
One of the most important things to agree on when assuming the auto loan is who will hold the insurance coverage on the car. When making this agreement, you should make sure to read the terms of the original loan. Some loans require the primary borrower to hold insurance on the vehicle while most state laws require the driver to be insured. This can cause an issue if you don’t have a written agreement regarding insurance. In some cases, the owner of the vehicle can add you as a driver on their policy or you may have to have insurance on the vehicle with them on your policy. Red Mountain Funding can help you understand the insurance regulations and make the right agreement for you.
No Down Payment
One of the biggest benefits of assuming a car loan is that you do not need a down payment. Most traditional and bad credit car dealerships will require a percentage of the purchase price as a down payment. If you are unable to make a down payment on a vehicle, you may want to look into assuming an existing loan. This type of vehicle purchase allows you to take over car payments with no money down.
One of the most difficult parts of financing a vehicle is getting a payment you can afford. If you c
hoose to take over car payments, you will be getting the interest rate of the current owner of the vehicle. This may make the payments more affordable with your current budget. Affordable car payments are one of the biggest benefits of this type of transaction. When searching for assumable auto loans, Red Mountain Funding can connect you with individuals who are looking for someone to take over their car loan in your price range.
Can’t Afford Car Payments, What Are My Options?
If you have found yourself in a situation where you can no longer afford your car payment, you may have wondered what you can do. You have three choices when faced with this problem.
The first choice is to have your vehicle voluntarily repossessed. This option can have a negative impact on your credit, making it more difficult to finance another car later down the road.
The second option is to try to sell your vehicle for what you owe on it. With the fact that cars lose value the moment you drive it off the dealership’s lot, this may be impossible in most cases. Most car owners are upside down on their loans and would need to sell the vehicle for thousands more than it is worth.
The third and easiest option is to have someone take over your existing loan. Often, there are people who are unable to get financing for a traditional loan or don’t have a down payment to purchase a vehicle. If you are looking to have someone take over your existing loan, contacting Red Mountain Funding should be your first step. We will help you find an individual willing to assume your car loan and take over the payments.
Red Mountain Funding is a family owned lending company that specializes in helping people get into the vehicle they need. We specialize in financing people with no credit or bad credit as well as helping individuals assume existing car loans with no down payment. We strive to help every person without the stress of traditional dealerships. Contact us today to find out how we can help you get the vehicle you need.
A lower monthly payment on your car loan doesnвЂ™t always mean youвЂ™re saving money. HereвЂ™s how car loans work.
Purchasing a car typically means taking out a car loan. If youвЂ™re in the market for a new vehicle, youвЂ™ve probably spent a lot of time researching car options, but do you have a good understanding of how car loans work? When you take out a car loan from a financial institution, you receive your money in a lump sum, then pay it back (plus interest) over time. How much you borrow, how much time you take to pay it back and your interest rate all affect the size of your monthly payment. Here are the 3 major factors that affect both your monthly payment and the total amount youвЂ™ll pay on your loan:
- The loan amount. It can be significantly less than the value of the car, depending on whether you have a trade-in vehicle and/or making a down payment.
- The annual percentage rate. Usually referred to as the APR, this is the effective interest rate you pay on your loan.
- The loan term. This is the amount of time you have to pay back the loan, typically 36вЂ“72 months.
How do these 3 factors affect your monthly payment?
A lower monthly payment always sounds good, but itвЂ™s important to look at the bigger financial picture: That lower payment could also mean youвЂ™re paying more for your car over the life of the loan. Let’s see how adjusting each of the 3 factors can affect your monthly payment:
- A lower loan amount. Let’s say youвЂ™re considering a $25,000 car loan, but you make a $2,000 down payment or negotiate the price of the car down by $2,000. Your loan amount becomes $23,000, which saves you $44.27 per month (assuming a 3.00% APR and a 4-year term).
- A lower APR. Consider that same $25,000 car loan and letвЂ™s assume a 4-year term. One financial institution offers a 3.00% APR and another offers a 2.00% APR. Taking the lower APR will save you $10.98 per month.
- A longer loan term. Extending a $25,000 loan from 4 years to 5 years (assuming a 3.00% APR) lowers your monthly payment by $104.14, but, youвЂ™ll end up paying $391.85 more in interest charges over the life of the loan.
Use the Bank of America auto loan calculator to adjust the numbers and see how differences in loan amount, APR and loan term can affect your monthly payment.
How a lower monthly payment can cost you more
One of the most important things to understand about how auto loans work is the relationship between the loan term and the interest you pay. A longer loan term can dramatically lower your monthly payment, but it also means you pay more in interest.
Consider a $25,000 car loan at a 3.00% APR and a 48-month term. Over 4 years of payments, youвЂ™ll pay $1,561 in total interest on the loan. If you extend that same loan to a 60-month term (or 5 years), youвЂ™ll lower your monthly payment by $104вЂ”but youвЂ™ll increase the total interest you’ll pay from $1,561 to $1,953.
Weigh all the factors before deciding
There isnвЂ™t any one-size-fits-all way to determine the best car loan. ThatвЂ™s why you need to take the time to understand how auto loans work and make the right decision for your specific financial situation.
Some people will benefit most by taking a longer term to reduce monthly payments and using the difference to pay down higher-interest debt. Others will prefer to make a higher monthly payment and pay off the loan sooner.
And if you have an existing car loan, you may be able to save by refinancing. Try our refinancing calculator to find out if you can lower your monthly payment by refinancing.
Ready to get started? Compare today’s auto loan rates from Bank of America.
When you assume an auto loan, you take over the car payments of the original buyer and gain ownership of the vehicle. However, not every lender will allow auto loan assumption, and not every buyer will be approved to enter into an existing contract.
How to Assume a Car Loan
Auto loan assumption is appealing to some buyers because many of the fees that are associated with new loan contracts have already been paid by the initial buyer. But, assuming a loan requires more than just picking up where someone else left off. In fact, the requirements are similar to what is necessary to initiate a new auto loan.
- The lender must allow the loan to be assumed. Not every loan provider is willing to do this, so make sure that assuming the loan for the car you want is even an option. Otherwise, you will need to engage in the process of buying a car with a lien on it.
- You must be approved to take over the loan. Your credit report will be pulled by the lender, and your income will be weighed against your existing debt in order for the lender to determine whether or not you will be able to make the necessary payments.
- You will sign a loan agreement. Make sure that all of the terms are acceptable, and that you understand all of the details of the contract. Pay careful attention to when your first payment is due. Because the billing cycle probably won’t change, the next installment may be due very quickly.
If you have moderately to severely damaged credit, you may not be able to assume an auto loan. Fortunately, there are car buying options specifically for buyers with credit issues.
Buying a Car with Less Than Perfect Credit
If you need to purchase a new or used car, but are afraid that your bad credit will prevent you from being approved for financing, Auto Credit Express can help. We will connect you with a dealer who is qualified to handle your unique situation. All you have to do to get started is fill out one simple, fast and secure online application.
Get your free credit score now, and get a copy of your most recent credit report!
IMAGE Mark Sangalang
I’d like to sell my car, but I haven’t finished paying the loan. Is it legal to sell your car mid-installment? How do I protect myself from unscrupulous buyers?
As a general rule, you cannot simply sell your car in the middle of the term of the loan. You must comply with the requirements and procedure contained in the Promissory Note with Chattel Mortgage which you entered into with the bank.
To understand your rights and obligations, you must carefully read the fine print of the signed copy of your Promissory Note with Chattel Mortgage. The banks do not use the same terms and conditions in the Promissory Note with Chattel Mortgage, so make sure you are reading the signed copy of your contract with the bank.
The typical Promissory Note with Chattel Mortgage will provide: “Sale, Encumbrance or Removal. The Borrower/Mortgagor shall not assign, sell, pledge, mortgage or otherwise dispose of or encumber or transfer possession of the Mortgaged Property or any part thereof, or attempt to do so, without the prior written consent of the Mortgagee. The Borrower/Mortgagor shall not remove or permit the removal of the Mortgaged Property from the Borrower/Mortgagor’s address stated above without the Mortgagee’s prior written consent. The Mortgagee shall have right to inspect the Mortgaged Property at any reasonable time.”
In order for you to sell your car, you need to get the prior written consent of the bank. You cannot sell and deliver the mortgaged car to the buyer for that would constitute a breach of your obligation to keep the car at the address stated in the contract.
The general practice is to sell the car on an “assume balance” basis. The buyer pays the borrower/mortgagor an amount for his equity (down payment and amortizations paid), and the buyer assumes the balance of the loan by paying the bank until completing the term of the car loan. In consideration for which, the borrower/mortgagor will deliver and turnover possession of the car to the buyer together with all documents to allow the buyer to transact with the bank in the name of the borrower/mortgagor. After completing the payments to the bank, the buyer gets the Release of Chattel Mortgage and related documents from the bank and then transfers the registered ownership from the borrower/mortgagor to the buyer.
That such a transaction has evolved into an industry practice does not mean that it complies with the Promissory Note with Chattel Mortgage. The bank can still object to the transaction, declare a breach of the contract terms, and seek to repossess the mortgaged car from whoever may be in possession.
The general practice above does not involve securing the prior written consent of the mortgagee bank. The identity and credit worthiness of the buyer is not made known to the bank. And most important, is that the loan and mortgage continues in the name of the original borrower/mortgagor, so any default or breach will be attributed to the original borrower/mortgagor and not to the defaulting buyer. If the bank declares you in breach of the car loan, you cannot readily borrow funds from the banking system again because of your bad credit record.
The correct procedure requires you to secure the written consent of the bank before you sell the car to the buyer on an assume balance basis. The bank will do a credit check of your buyer. To protect you from an unscrupulous buyer, let the bank check the creditworthiness of your buyer.
If the buyer is creditworthy, the bank will consider your loan as pre-terminated and ask you to pay all transaction expenses, such as pre-termination fees, cancellation of chattel mortgage, transfer of registration to the bank or buyer, notarization, documentary stamp taxes and related charges.
The bank and the buyer will then enter into a new Promissory Note with Chattel Mortgage.
A joint car loan can be issued with two names on the lease. In most cases, this is done because the two parties will be sharing the debt. This strategy can also be used to increase the total limit available by combining the two incomes on an application. At some point down the line, both parties may determine it is better for one to continue the loan separately. There are several avenues to take to achieve this.
Modify the Loan
In very rare cases, your current lender will allow you to modify the loan and retain the original contract. You will have to pay a modification fee in nearly every instance. This is only permitted by some lenders and for unique reasons. If one person on the loan dies, for example, you can modify the loan easily to list only the survivor. If you are a married couple going through a divorce, the lender may allow loan modification so the asset can remain with a single person who retains the right to own the car. However, establishing who has this right can be a challenge.
Refinance the Loan
If your lender does not permit any modification, you will have the option of taking out another loan to pay off the car loan in full. Once this loan is closed, both parties are relieved of their obligation. The party that took out the new loan will retain all ownership of the asset moving forward. Again, there will be fees and penalties to this refinancing and modification. You will still need to determine that one person has the legal right to close the loan and open another as a single owner of the asset. If you cannot settle this outside of court, then a judge will have to make the decision for you.
Settle the Issue in Court
A loan contract does not give priority to one borrower over another. Each has an equal stake in the debt or the asset by law. A judge may be required in order to settle the issue of who will retain the rights to the automobile if there is a dispute. The most common scenario for this problem is a divorce. In divorce court, a judge will split assets and debts. Whoever is awarded ownership of the car will go forward with the modification or refinancing to remove the other person’s name from the loan.
Sell the Asset
Often, the easiest way to get out of a shared auto debt is to simply sell the car. Each party will have a right to collect any profits made. With a car, it is more likely there will be some amount still owed on the loan, which both parties must contribute to. The percentage each party contributes is determined either by mutual signed agreement or through a legal process in court. Once the debt is closed, though, the two parties will not have a legal obligation to continue the connection they shared through the joint car debt originally.