Can I Transfer A Car Loan To Another Person?

Learn about whether you can transfer a car loan to another person and your options for selling your vehicle under finance.

No obligation. It won't affect your credit score.
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, updated on July 4th, 2023       

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Can you transfer your car finance deal to another person?

It isn't uncommon for those currently paying off their car loan to decide to sell their vehicle, despite having time left to run on their finance agreement. If you find yourself in this position, you might be wondering whether you can transfer your car loan over to another person.

You can find out more about the options available to you when it comes to selling your vehicle under finance right here with Savvy. Learn all the key details you need to know before you start the selling process to help make sure you’re on the right track.

Am I able to transfer my car loan to another person?

It isn’t possible for someone to transfer their outstanding car loan debt to a family member or someone else in Australia. All finance agreements are signed off on under the condition that you will be the only party responsible for repaying the loan debt. As such, roping someone else into the agreement without formally including them in the document isn’t allowed.

Not being able to transfer your secured loan debt across to someone else is also because responsible lending laws require lenders to do their due diligence and only approve applications for car buyers who can comfortably repay the debt across the proposed term. If your lender believes you may struggle to pay off the loan for which you’re applying for any reason, your application will almost certainly be rejected.

In the event your financial situation changes and you’re unable to make your car loan repayments, switching your car loan to another person or family member isn’t going to be an option available to you. Should you find yourself in such circumstances, you should always reach out to your lender as soon as possible to make them aware of the situation.

Financiers will have hardship provisions for borrowers who struggle to make repayments, so it’s worth speaking to them to see whether you can qualify for some level of relief.

What are my options for selling my car while it’s still under finance?

While you won’t be able to directly transfer your car loan to another person, you can sell your vehicle even if it’s still under finance. This gives borrowers still paying off their debt options to switch to a new vehicle or otherwise release themselves from their loan commitments. There are two ways to go about selling your car under finance:

  • Paying out your loan with savings before selling the vehicle: for those in a position to do so, you may wish to pay off your debt straight away with savings before selling your car. This is likely to make the selling process more straightforward, as car buyers are likely to be more interested in vehicles which are unencumbered (without finance).
  • Paying out your loan with the proceeds from the car sale: if you can’t pay off the loan with savings, however, your other main option is to use the funds you receive from selling your car to cover its costs. It’s crucial to be upfront about the loan with your buyer, as the situation is likely to be more complex with a finance deal thrown into the mix. In most cases, your car buyer can transfer the funds directly to your lender.

It's important to bear in mind that selling a vehicle under finance is likely to come with an early repayment fee. This charge is present on most secured, fixed rate loan agreements and will vary in cost depending on several factors, primarily based on the size of your loan and how long is left to run on your term. The earlier into your loan term you sell your car, the higher your early repayment fee is likely to be.

Should I wait until my loan is paid off before selling my car?

If at all possible, you should wait until your vehicle has no finance owing before selling it. This is because encumbered vehicles are likely to be harder to sell, given that buyers may be put off by the outstanding loan debt and could be reluctant to pay it off.

The reason for this is simple: from a car buyer’s perspective, paying out the remaining loan to the vendor relies on them paying their lender, who could acquire and sell the vehicle if the debt isn’t paid. As mentioned, though, arranging for your lender to send a letter or payout quote to your car’s buyer reduces the risk of this happening.

Selling your vehicle after your loan is repaid sidesteps this potential issue entirely, smoothing out the process for all involved. While not everyone has the luxury to wait, doing so will likely increase your chances of selling your car.

Common questions about selling a car under finance

Does selling my car under finance and transferring my loan to someone else affect my credit score?

It can – paying out your loan in full when selling your car can help your credit score grow, which could in turn make it easier for you to access lower-interest finance in the future. However, if your car buyer pays out your loan directly to you and you don’t pass this on to your lender, your credit score will be negatively affected given that your name is still on the agreement and you’ve effectively defaulted.

Can I trade my car in to a dealership whilst under finance?

Yes – there are situations where you can trade in your car to a dealership despite there being a loan still attached to it. In this situation, you’ll have to work with both the dealership and your lender to ensure the trade-in value of your car is sufficient to cover your debt and how you’ll cover any potential shortfall.

Will I always be able to sell my car under finance?

Not necessarily – whether you can sell your car will ultimately depend on the details of your loan agreement with your lender. There may be some cases where you’re required to see the loan through from start to finish, which could limit your options. In most cases, though, you’ll be able to sell your car before the end of your loan.

Should I refinance my car loan if I’m struggling with my repayments?

Car loan refinancing is a viable option if the reason you’re looking to sell your vehicle is to free yourself from its financial commitments. This can provide you with access to a lower interest rate or fees (depending on what lenders are offering) and the ability to spread out the remainder of your loan over a longer term, thus reducing your monthly repayments. Many Australians refinance their car loans to help them breathe a little easier when it comes to their monthly budget.

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