A car loan contract is an agreement between a borrower and a lender, and not something that can be just transferred to another person.
In order to transfer the car loan, you will may have to transfer the asset as well, and rely on personal agreements for any additional outcomes desired.
Such arrangements can get messy fast!
In this article, we will discuss why it is challenging to transfer a car loan to another person and how to navigate the loan and asset transfer if desired.
In This Post:
Legal Obligations that Prevent the Transfer of a Car Loan
The responsibility for a car loan cannot be transferred to another person. There are a number of legal hurdles that make this impossible.
However, it is possible to transfer the ownership of the car to someone else and have that person take out a loan to pay off the loan of the original owner.
In substance, this is essentially the same as selling your car to someone that you know.
But let’s get into some of the issues that prevent you from just transferring a car loan to another person.
Responsible Lending Laws
A lender is obligated to assess the suitability of anyone who is seeking auto finance.
The assessment must be completed within a reasonable amount of time of the loan being taken out – this is why loan approvals often lapse after 90 days.
These obligations are included in the National Consumer Credit Protection Act 2008 (NCCP), and upholding them is a condition of holding an Australian Credit License.
So a lender cannot make exceptions even if they wanted to just transfer a loan to someone else.
They must conduct a full credit assessment.
Secured or Unsecured Car Loan
The second issue is in relation to the security of the loan.
Most car loans are secured, which means that the vehicle is held as collateral for the loan amount.
So transferring the finance of the car to a third party will also require the security to be linked with that new loan.
This will require you to pay out the current loan.
An unsecured loan removes the vehicle itself from the equation altogether. You don’t need to transfer ownership of the vehicle unless this is the desired outcome of both parties.
Sale Transaction/Asset Transfer Required
If you are moving the loan and security to another person then you are going to have to also change the ownership of that asset.
No lender is going to provde a new loan secured against an asset that doesnt belong to the person legally responsible for repaying the balance.
The process is now starting to look just like a regular sale of a car that is under finance.
How to Transfer the Car and the Loan to Another Person
To transfer the car loan to another person, we also have to transfer the ownership of the car itself and pay out the existing loan.
The steps below summarise how to effect this change from start to finish.
Note that this does not cover what will be required of the new borrower when applying for finance. For more information on that step, check out:
Agree on a Sale Price
You will have to agree on a sale price – ideally, it covers the outstanding balance of your current loan or you will have to pay out the balance to have the security removed.
Apply for a New Loan
The new buyer will have to go through a new loan application.
This could be an opportunity to secure a better deal on finance than what you have been paying, which could be part of the problem you are trying to solve.
With access to over 40 lenders, the brokers at Gusto Finance can help find the most suitable deal on the market. So get in touch today!
Obtain Authorisation from the Secured Lender
If your current car loan is secured, then you will need to work with the lender to release the security once the loan is paid out as a result of the sale.
This will remove any encumbrances on the vehicle and allow the transfer of the asset.
Transfer the Asset
The new lender will lodge security over the vehicle, and you can now officially transfer the ownership of the car.
Both the loan and the asset are now with the other person.
Legally this person has full rights to the car now and can do as they please. Any personal agreements you have to use the car, or repay the loan through them, is entirely between you and the new owner.
Alternatives to Transferring the Car Loan
If you are only looking to transfer the car loan to a third party, then chances are you plan on having access to the vehicle in the future.
If you have been struggling to make your repayments, then there may be options to refinance the loan to another lender and either secure a lower cost loan or extend the term to lower the repayments.
There may be options available to you that will enable you to retain the ownership (and freedom) with the asset while also solving any short-term challenges you are facing.
If you would like an obligation-free review of your current circumstances and what loan options are available to you, then submit an inquiry below, and our team will be in touch.
Conclusion
So while you can transfer a car loan to another person, it can only be done as part of the sale of that asset.
Both the car and the car loan must go together, except in cases when the original car loan is unsecured and no security interest is registered against the car.
