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Refinance Your Car into Someone Else’s Name: Is it Possible?

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There are a handful of reasons you might want to refinance your car into someone else’s name. Maybe your car payment is an excessive burden, or perhaps you bought a car to help a loved one and you’re ready for them to take over responsibility.

Let’s be clear: It’s not possible for someone to “take over” your auto loan. Yes, you could go rogue, use someone else’s money to make payments and allow that person to drive your car. But you open yourself up to potential liability, particularly if the other driver isn’t an authorized one on your insurance policy. And what happens if they stop paying?

What you can do if you’re ready to ditch your car loan, but don’t want to go through the process of selling the car, is to have the new driver refinance in their name. We’ll walk you through the options and alternatives.

When does it make sense to refinance in someone else’s name?
When does it not make sense to refinance in someone else’s name?
Alternatives to consider
What steps do you need to take to refinance your auto loan in someone else’s name?
How do you find a bank or lender who will refinance your auto loan in someone else’s name?

When does it make sense to refinance in someone else’s name?

You want to transfer ownership without having to sell your car. If you want a friend or family member, for example, to take over ownership, your loved one can use a refinance loan to pay off your existing loan, replacing it with a loan in their name.

  • What it’s not: This does not mean making someone else responsible for your current loan or even transferring a loan into someone else’s name. “I don’t think that’s possible,” said Todd Nelson, a senior vice president with Lightstream when asked for comment, “unless the new lender is considering the ‘loved one’ a cosigner on a new loan. But in that scenario, the original borrower is still on the loan.”

When does it not make sense to refinance in someone else’s name?

  • If your vehicle has high mileage or is an older model. Many lenders have age and mileage restrictions that apply to refinancing. Generally speaking, it can be difficult to refinance a car that’s 10 years old and older.
  • You’re facing prepayment penalties. You can search for information about fees for early repayment in your loan contract or by calling the lender and asking.  Certified Financial Planner Ryan Haiss recommends reading your contract thoroughly and contacting a financial advisor or lawyer if you’re uncertain about the penalties.
  • The new borrower has credit issues. Poor credit can result in the potential buyer being declined when they apply for a refinance loan, or it can result in them being approved for a loan with high interest rates or otherwise unfavorable terms.
  • You owe more than the car is worth. Some lenders won’t refinance a car if the current loan balance is higher than the value of the car. You may be asked to pay down the difference first.

Alternatives to consider

When refinancing into someone else’s name doesn’t make sense, you may want to consider other options. Here are other ways you might achieve your goal:

  • Sell the car to your intended borrower. Instead of working out a refinance option, have the new driver take out a separate loan and buy the car from you.
  • Sell the car on the open market. While it’s more effort to list your car online or through newspaper classifieds or even word of mouth, this option can help you come up with the cash to pay off your loan and avoid credit damage or a repossession when you’re struggling to keep up with your loan. Here’s how to sell a car when you still have a loan.
  • Refinance in your own name. If the new driver has credit issues, you may want to skip working with them, apply for your own refinance and keep the car for yourself. You may even be able to get better terms if you’ve paid down some of your loan balance.
  • Get a loan modification. If you’re having trouble with payments you may be able to work directly with your lender to defer one or more payments, reduce your monthly bill or, in special circumstances, reduce the interest rate or principal balance.

What steps do you need to take to refinance your auto loan in someone else’s name?

Once you’ve reviewed the details and determined that refinancing your loan into someone else’s name is a good idea, you’ll need to do some research and comparison shopping. Here are the proper steps to follow:

1. Research loan options

Shopping around can help you compile a list of lenders who might refinance your car and eliminate others that won’t. Be sure to check that the lender refinances your make, model and year, and that it’s not over the lender’s mileage limit.

Haiss suggests starting with your current lender to see what options are available. Your lender may have special rates available or be able to expedite the process since it already has your vehicle information and your prior loan application on file.  It’s important to note, however, that some lenders will not refinance their own loans.

If you find lenders who offer preapproval, or rate quotes, without performing a hard pull on the new borrower’s credit, you can start gathering and comparing quotes during this step.

2. Apply for a refinance loan

Once you’ve identified lenders who might work with you, you can proceed with submitting applications. Applying for a refinance will require that both you and the new borrower submit some or all of the following documents:

  • Insurance card
  • Registration card
  • Photo ID
  • Proof of income
  • VIN, make, model and year
  • Odometer reading
  • Terms and outstanding balance on the current loan

Haiss recommends aiming to get roughly two to four loan offers in total so you can compare available terms. You can also present your offers to lenders, asking them to beat other deals you’ve been approved for.

To reduce the number of hard inquiries to your credit, make sure to submit all of your applications within a 14-day window.

3.  Transfer ownership

Haiss says it’s a common misconception that the process is over when the new owner refinances. But completing the transaction includes a couple more steps.

Both parties likely need to visit their local Department of Motor Vehicles in order to transfer registration into the new owner’s name. This may include submitting the title and following instructions regarding any liens, submitting the bill of sale, promissory note or other requested items. Requirements and fees vary state-by-state so be sure to check with your state’s DMV before making an in-person visit.

Finally, you’ll need to update your insurance. Changes in financing and ownership can affect your rates. If you’re no longer driving the vehicle, or you’ll be driving the car less, you may be eligible for lower rates or no longer need coverage.

How do you find a bank or lender who will refinance your auto loan in someone else’s name?

Each lender has unique requirements that determine which vehicles they will and will not refinance. Some lenders, like Santander, Capital One and Navy Federal Credit Union (NFCU),  won’t refinance if they’re the original lender on your existing loan. Other banks that will refinance their own loans include Bank of America and Wells Fargo.

If you’re not sure, you may be able to locate this information on the lender’s auto refinancing web page, in the Frequently Asked Questions (FAQ) section, or just give the lender a call. You can also search our list of best lenders for an auto loan refinance.

The bottom line

As with any financial decision, refinancing your car loan into someone else’s name shouldn’t be done impulsively. Haiss says the most important thing is to do your homework, which includes talking to different lenders and understanding your liability. Putting in this extra effort means you can make the best decision for all parties involved.

Completing the refinance properly can also help you avoid placing unnecessary strain on your relationship with a loved one that would occur if a verbal agreement didn’t work out as planned.

 

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