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How to transfer a car loan to another person

Learn what steps you need to take to transfer a car loan to another person and find out what you should be aware of before you agree to the deal.

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Transferring a car loan to another person can be a bit of a process and it’s often easier to pay your loan off before you sell your vehicle. That said, there are measures you can take if you no longer want your vehicle or the loan that comes with it. The difficult part is typically finding a buyer who’s willing to take over a loan and taking the financial hit that comes with losing any positive equity that might be built up in the vehicle.

Keep reading to find out more about how to transfer a car loan to another person and learn what other alternatives might serve you better in the long run.

Is it possible to transfer a car loan to another person?

It is possible to transfer a car loan to another person, though it should only be done when absolutely necessary. Some of the reasons you might want to transfer a car loan are that you can no longer make your payments and your vehicle is in danger of being repossessed. You may also want to transfer your loan to buy a less expensive vehicle.

One of the main downfalls of transferring your car loan is that you won’t get any of the positive equity accrued in your vehicle. This means that you’ll lose all of the payments that you put into it prior to transferring. This is why many borrowers choose to refinance their car loans to get better terms, or sell their vehicles for more than the loan is worth to turn a profit on the sale.

Just be aware that these are only viable solutions in cases where your vehicle is worth more than your outstanding loan. It’s also important to note that these solutions only work if you have a bit of time on your hands. If you’re in danger of defaulting on payments, you may need to cut your losses and attempt to transfer your car loan to another person as soon as possible.

What is positive vs negative equity?

Positive equity exists when your vehicle is worth more than the amount you owe on it. For example, if your car is worth $20,000 and you owe $5,000 to pay it off, your positive equity will be $15,000. If you have positive equity in your vehicle, it might make more sense to refinance your loan or sell your car to pay the loan off and keep the remaining balance.

Negative equity is when you owe more than your car is worth. For example, if you owe $18,000 on your loan but your vehicle has depreciated to $15,000, you have a negative equity of $3,000. If there is negative equity in your vehicle, it’s in your best interest to transfer your car loan to another person.

How to transfer a car loan to another person

A car loan transfer involves transferring a vehicle that has money left owing on it to another person who is willing to assume the remaining payments. Most buyers won’t want to take on an outstanding loan as it seems an arduous process to navigate. That said, it can be relatively easy as long as you know what you’re doing.

The main way to transfer your loan to another person is to go back to your current lender and let them know that the person wants to take over ownership of your vehicle. From there, your lender will want to run that person through a credit check and make sure that they meet all the eligibility criteria to refinance the loan or meet the requirements of the loan contract that’s already in place.

Step-by-step process to transfer a car loan to another person

It’s relatively easy to transfer a car loan to another person if this seems like the best solution for you. Follow these steps to get started:

  1. Contact your dealer or lender to find out how to transfer your loan. Your first step is to find out what’s required for you to transfer your loan. Your lender will be able to walk you through the loan transfer process and let you know what paperwork you’ll need to fill out to seal the deal.
  2. Make sure there are no restrictions on transferring your loan. Your lender should be able to let you know if there are any restrictions you should be aware of that might keep you from transferring your loan. This could be an issue if you’ve just assumed the loan yourself or you’ve already missed a few payments.
  3. Put together the necessary documents. You’ll want to fill out your end of the paperwork in advance so that you can guide your buyer through the loan transfer process. You’ll likely need to bring them in person to your lender so that they can witness the signatures and set up direct deposit.
  4. Line up your buyer. When you’re well-versed in how to transfer your loan, you’ll want to line up a buyer. You can advertise your vehicle on a public marketplace like Kijiji or Craigslist. That said, many car loan transfers happen between family members or close friends simply because it’s easier to negotiate the deal and hold each other accountable.
  5. Set up meetings with potential buyers. Once you’ve got an interested buyer, you should show them the vehicle and explain the loan takeover process. You will also want to inform them of what they’ll need to take over the loan – such as a good credit score and proof of income to show they can make the payments.
  6. Confirm the loan transfer with your lender or dealership. The final step is to go into your lender or dealership with your prospective buyer to complete the transfer. It’s up to you to make absolutely sure that your loan has transferred successfully before you allow the new buyer to drive away. This will make sure you’re not held liable for payments or damage to the car in the future.
  7. Modify the title of the vehicle. Once you’ve switched the loan over to a new buyer, you’ll want to transfer the ownership of the vehicle. You can do this by going into your local insurance agency to get the car registered and insured under the new owner’s name.

Benefits of transferring a car loan to another person

There are a handful of benefits when you transfer a car loan to another person:

  • No more payments. This is the biggest benefit since the reason why most people transfer their car loan to another person in the first place is to get rid of their payments.
  • Less impact on your credit score. If you find someone to take over your loan, you won’t need to worry about defaulting on your payments and ruining your credit score.
  • You can purchase a new vehicle. Once you get rid of your old loan, you’ll be better placed to purchase a less expensive vehicle.
  • Save money. Once the transfer is approved, you can choose to go without a vehicle to save money on all of the costs of car ownership.
  • Simple transfer process. While it may seem daunting at first, transferring a car loan is usually a relatively painless process once you get started.

What to watch out for when you transfer a car loan to another person

Transferring a car loan to another person comes with its fair share of drawbacks as well. These include the following:

  • Difficult to find qualified buyers. It can be difficult to find a buyer with a solid credit score who’s willing to take over your loan payments.
  • Can be a complicated process. The process can become long and drawn out if you struggle to find a buyer that fits the loan profile.
  • Restrictions on certain transfers. Your lender can refuse to initiate a transfer to another person – which means you’ll need to explore other options to get rid of your loan.
  • You’ll lose any positive equity in the vehicle. You’ll lose any money you put into your loan if you transfer it several years into your payments (when you have positive equity).
  • Transfer fees. You’ll likely need to pay a fee to transfer the loan and cover administrative costs for your lender.

Compare car loan options

Name Product Min. Loan Amount Interest Rate Loan Term Min. Credit Score Requirements
Car Loans Canada
$7,500
3.99% to 29.95%
12-84 months
300
3+ months employed, min. income of $2,000/month
Search thousands of vehicles online, including $0 down options, from dealers across the country and get matched with affordable financing options. Auto loans are also available to those with bad credit, consumer proposals and bankruptcies to help rebuild credit.
CarsFast Car Loans
$500
4.90% to 29.90%
12 months - 8 years
300
Gross income $1,800+/month
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs. Apply online to purchase a new or used vehicle and get the vehicle delivered to your door.
Loans Canada Car Loans
$500
0% to 29.99%
3-96 months
300
Employed for at least 3 months, min. income of $1,800/month
Get access to financing from multiple lenders across Canada through a single application with Loans Canada. Bad credit, CERB and EI borrowers are considered.
Carloans411 Car Loans
$500
1.90% to 19.99%
Up to 72 months
300
Employed for 3+ months, min. income of $1,600/month
Get connected with suitable lenders through CarLoans411. Finance your next car, van or truck with loans available in amounts from $500 to $50,000. Check eligibility for this loan through LoanConnect.
LoanConnect Car Loans
$500
10.00% to 46.96%
6-60 months
550
No min. income requirement
Get access to 25+ lenders through LoanConnect's brokerage. Receive pre-approval in as fast as 60 seconds and get your funds in as little as 24 hours.
Auto Arriba Car Loans
$3,500
8.99% to 29.50%
6-84 months
N/A
Currently employed for 3+ months
Auto Arriba offers car loans starting at $3,500 up to $100,000, with as little as a 30 minute loan turnaround time. On a limited number of approved loans, Auto Arriba is currently offering a rebate of the amount of your first scheduled payment 30 days after it has been processed up to a maximum of $500.
Fairstone Secured Personal Loan
$5,000
19.99% to 23.99%
3-10 years
560
Have an established credit history and own your home
Fairstone offers secured personal loans up to $35,000.
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Alternatives to transferring a car loan to another person

While transferring a car loan may seem like the best option if you can’t make your payments or want to get rid of your loan, it’s not always the most cost-effective solution. The following options may be a better fit depending on your circumstances:

  1. Refinance your loan. If you’re struggling to make your payments and your credit score is in good shape, you might like to consider refinancing your loan. This would allow you to spread your payments out over a longer term and potentially even qualify for better interest rates.
  2. Sell the vehicle to pay off your loan. If you have a decent amount of positive equity accrued in your vehicle, you may be able to sell it to pay off your loan. For example, if your car is worth $20,000 and there’s $5,000 left on your loan, you could sell the car and take $5,000 out of your profit to pay off your outstanding balance. Then you’d have an additional $15,000 to put into savings.
  3. Trade your vehicle in for a more affordable car. Another safe bet would be to trade your vehicle in for something more affordable. Let’s say your vehicle is worth $20,000 with $5,000 left on it. If you trade it in for a $10,000 vehicle, your dealership may be willing to wipe out your debt and you won’t lose out on having a car in the process.

Bottom line

Transferring a car loan to another person doesn’t have to be difficult, but it can be a costly process. For this reason, it should be avoided where other alternatives might serve you better. Find out more about how you can transfer a car loan to another person, and learn more about what else you can do to reduce your payments or get rid of your car loan and still turn a profit.

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