How to Take Over Car Payments the Smart Way

Article Summary:

You can take over someone else’s car payments by communicating with the original lender and having the proper paperwork in order. This means the seller has the car’s title, bill of sale, and the original contract, while the buyer has the necessary insurance coverage and financial backing.

Life sometimes throws us curveballs, and our financial future might not work out the way we planned. Maybe you’re underwater on your car loan, or you’re looking to purchase but don’t have the cash for a new car. On the other hand, maybe you simply don’t have the credit for an auto loan.

Instead of opting for the high interest rates of a subprime car loan, a good option might be to take over car payments from a previous owner. For the seller, it’s a chance to escape the penalties and possible legal hazards of defaulting on the loan. For the buyer, it’s an opportunity to purchase a vehicle without a sizable down payment. But how can you take over these car payments?

How to transfer a car loan (or lease) to another person

Unfortunately, in nearly all instances you cannot simply transfer a car loan from one person to another. Car loans are contracts specifically tailored to each individual borrower, and as such a lending agency will almost never allow it.

In this case, there are several simple steps you will need to follow to take over car payments from the seller.

Have the seller contact their lender

This is always the first step in the process. In order to move forward, the lender will have to work out a new loan agreement that discharges the original contract. Although the end result seems simple in theory, transferring car loan payments from one person to another is a bit of a jigsaw puzzle in practice.

Once the lending company agrees to a new arrangement, the buyer will generally have to set up a fresh loan contract with the lender. They can also take out a loan with a different financial institution to pay it off before the transaction can be completed.

Documents the buyer will need

If the lender agrees to the transfer, the buyer will need to gather all the usual documents to set up the new loan paperwork.

  • Income and employment information. This includes W-2s, pay stubs, and all the usual information that lenders require to approve a loan. If you’re unemployed, you may still be able to qualify for a loan if you can demonstrate sufficient savings or have a friend or family member who is willing to cosign.
  • Information for a credit check. Typically, this will be your name and address, date of birth, social security number, and phone number. A soft credit check won’t affect your credit report, but a hard credit check will slightly impact your credit score, so be sure you are genuinely interested in seeking loan approval beforehand. Additionally, if you have an excellent credit score, you may qualify for a lower interest rate from a financial institution.
  • Proof of insurance. To secure an auto loan, you’ll need to demonstrate that you have the minimum coverage required in your state. Usually, this is simple liability insurance. However, when you purchase a car with an outstanding loan, you may be required to carry additional car insurance coverage, such as collision or comprehensive to ensure that it can be repaired if it is damaged.

To ensure you’re working with the best auto insurance company, take some time to compare various insurance rates. You can use the tool below to get started.

Documents the seller will need

The seller will need to provide a bill of sale, the car title, and a copy of the original loan contract from the lender. Keep in mind that this is a negotiation between the lender, seller, and buyer. Everyone has to agree to the terms, and it’s especially important that the person taking over car payments for the original owner understands the terms of the existing auto loan.

It’s very likely that the lender will want to make adjustments to the existing loan terms, and they might not be as favorable. However, most lenders understand that this is a much better alternative than repossessing a car, so they may be willing to negotiate the loan terms and get the deal done.

Pro Tip

Be prepared for the old and new auto loan terms to differ. You’ll need to work with the lender and the seller to find the best loan terms for everyone involved. Since auto loans have payment plans tailored to an individual’s credit score, be prepared for a slightly different payment plan and interest rate.

4. Close the deal

Once all the details are worked out, and all parties are satisfied, sign the new loan documents and sign the title to transfer ownership of the vehicle.

How to take over a lease

Fortunately, taking over a lease is a much simpler process. This is because, in most instances, car leases are transferable.
A car lease is an agreement between a dealer and buyer where the dealer is still the owner of the vehicle, and the buyer makes a monthly payment to use it for a set amount of time. Since there is no loan contract and no change in ownership, transferring a lease is usually a simple arrangement between the dealer and the two parties.

Like transferring a car loan, dealers would prefer a transferred lease to a defaulted one. Naturally, the new lessee will need to provide the same documentation required to obtain a lease under normal circumstances, and everyone will need to coordinate to ensure the transfer process is completed smoothly.

Is it better to take over car payments?

There are many benefits if you choose to take over car payments from another owner instead of purchasing a car outright. If making a hefty down payment on a new vehicle is not a good financial decision, looking for a used vehicle that is already being financed may provide you with an opportunity to meet your needs.

All it takes is a little coordination and a willingness to work with others to find a good price and reasonable terms. It’s a bit different than buying a car traditionally, but it’s a very manageable process for the average car buyer.

FAQs

Do I have to use the current loan company to set up the new loan?

You can certainly use other lenders, but it is important to remember that you will need the original lender to agree to any form of payment used to discharge the existing car loan.

Can I sign a contract with the seller to make their loan payments to purchase the car?

Do not make a handshake agreement to purchase a vehicle by making a car payment for someone else. Although it might seem like a reasonable arrangement on the surface, this introduces a host of thorny legal problems that could end in disaster.

Ultimately, the vehicle belongs to whoever has the title, and a title cannot be transferred without first discharging the existing car loan. Even if you sign a contract with the owner stating that you own the vehicle when you take over car payments for them, you don’t. The car still legally belongs to the person with the original auto loan.

That means you cannot get car insurance, they can try to take it back anytime they want, and if the buyer stops making payments for any reason, the seller is the one the loan company will come after. It’s a legal nightmare.

Am I getting a good deal?

This is ultimately up to you, but there are some things to consider when buying a used car that is being financed. The owner of the vehicle will naturally want the value of the vehicle, which means the price will be the amount of the outstanding loan plus the extra value of the car.

If a car is worth $10,000 and there is an $8,000 existing loan, you will likely be taking out an $8,000 loan and paying $2,000 in cash. Alternatively, you may be able to negotiate a $10,000 auto loan with the lender, but your monthly payments will likely be higher than the original loan.

How long will my loan term be?

The length of the loan contract will probably be the same as it currently stands for the vehicle. So, if there are six years left on the loan being transferred, most lenders will probably be open to writing your loan for six years.

It is possible that they will want a shorter time. And if you’re rolling part of the selling price into the new loan, the lender may be open to writing you a longer loan. All terms are negotiable, but it’s likely the lender will want to stick with the existing timeline.

Should I expect to make a deposit on the car before signing?

Absolutely not, and there are two reasons for this. First, a deposit is an agreement to secure purchase at a later date and isn’t necessary in this type of transaction. The lender also has to agree in order for you to take over car payments from the seller, so you don’t need to give the seller a deposit to hold the vehicle.

Second, if the seller is asking you for a deposit, beware! In this case, it’s possible that it is actually a scam. Also, remember that the current owner is probably selling the vehicle because they have a difficult financial situation. They have plenty of incentive to complete the transaction as it stands.

Key Takeaways

  • Make sure both parties have their documentation ready for the transfer. That means the buyer has the standard loan documents and the proper insurance for the buyer, while the seller has the title, loan contract, and bill of sale.
  • Do not provide a deposit or any handshake agreements for loan payments. Follow the process as outlined above and secure an auto loan from an appropriate financial institution, and carefully consider your lending options.
  • Do your research. Make sure the vehicle is in acceptable condition and ensure you are prepared to accept the financial obligations of the new loan amount.
  • Be willing to negotiate with all parties involved, and listen closely to everyone’s needs to get the best terms possible.
View Article Sources
  1. Vehicle Loans — GSA Federal Credit Union
  2. Auto loans — Consumer Financial Protection Bureau
  3. Used Car Loan Rates: Finding Lowest Rate With Best Terms — SuperMoney
  4. Can You Buy a Car Before The Lease is Up? — SuperMoney
  5. Buy or Lease? What to Know Before You Decide on Your New Ride — SuperMoney
  6. How Many Car Payments Can You Miss Before Repossession? — SuperMoney
  7. Buying a Car: Paying Cash vs. Auto Loan — SuperMoney
  8. How to Calculate Car Payments – All You Need to Know About Auto Loan Payments — SuperMoney
  9. Best Auto Loans for Buying a Used Car in 2022 — SuperMoney