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When you take out a car loan, it may be a good fit for your life and budget at the time. However, auto loan terms can be long — averaging around 67.5 months, according to Experian. Various events can impact your ability to keep up with the payments over five-plus years, from economic downturns and job losses to divorces or breakups. While refinancing a car into someone else’s name isn’t usually an option, there are a few other steps you can take.
You generally can’t refinance a car loan from one person’s name into another’s. For example, if you want your friend to take over your car payments because you can’t afford them, you wouldn’t refinance to transfer financial liability to them. Instead, the purpose of auto loan refinancing is to help you get into a more advantageous car loan before your current loan term ends. When you apply, lenders review your current loan, credit, debt, income, vehicle and proof of ownership to determine if you qualify.
The main way to transfer ownership and financial liability of a car to someone else is to sell it — not refinance it. If the buyer needs financing, they’ll need to apply for an auto loan in their name. If they get approved, they’ll get the funds and can pay you for your car.
From there, you’ll document the transaction with a bill of sale and sign the title over. You’re then responsible for paying off your outstanding auto loan balance with your lender and signing a release of liability with your state’s authority on motor vehicles.
If you agree on a sale price higher than your outstanding balance, you can pay off your loan in full and keep the difference. However, if you agree on a price that’s lower than what you owe, you’ll be responsible for paying the difference to your lender out of pocket.
For example, if your car is worth $15,000 and you owe $8,000, the buyer should pay you around $15,000. You can then pay off your $8,000 loan balance and walk away with $7,000. However, if the buyer pays $7,000, you’d owe it all to your lender plus an extra $1,000.
In some cases, you may be able to refinance and add a coborrower, then refinance again to have the coborrower remove you from the loan. However, that involves an extra loan, extra time waiting for an additional title transfer, unnecessary credit score damage and possibly fees. Selling your car is generally the faster, easier and more cost-effective option.
If your primary goal is to lower your car payment, you may not need to sell your car. Here are a few strategies that could help.
A good place to start is to contact your lender and discuss your situation. Be honest about your financial troubles and ask if they can help. It’s often in their best interest to make accommodations rather than go through the repossession process. Common loan modifications include adjusting payment due dates, deferring payments for a set period or refinancing the loan to better fit your needs.
You can also consider trading in your car for a more affordable one with lower monthly payments. Sites like Kelley Blue Book can help you estimate the amounts you can expect to get when trading your car in with a dealer or selling it to a private party. You’ll then need to subtract your loan balance to estimate the net amount that would go towards your next car.
Refinancing may also be able to help lower your payments, especially if you have a well-qualified cosigner. A cosigner is someone who agrees to be liable for your auto loan if you fail to make the payments on time.
If you have someone with good credit who is willing to sign for you, their guarantee may help you qualify for better interest rates or lower payments. However, it’s important to understand that if you miss payments, it can lead to credit score damage and collection attempts for you and your cosigner. You’ll want to let them know right away if you ever run into financial challenges.
Refinancing a car can make sense when it offers you a meaningful advantage over your current loan. For example, if your credit has improved or rates have gone down in the market since getting your original loan, you might qualify for a lower rate that can lower your monthly payment amount and overall cost.
You may also want to refinance to remove a cosigner or because you’re unhappy with your current lender’s customer service. Further, even if you don’t qualify for a lower rate, you may be able to avoid default by refinancing and extending your term to get a lower monthly payment.
There are many possible reasons to refinance, but transferring ownership isn’t typically one of them. If you're considering refinancing your car in someone else’s name, your most straightforward option is to sell it.
Learn more about auto loan refinancing and ownership transfers.
Whether you can refinance a car without a co-owner depends on the laws in your state, the verbiage on your title and the rules of your lender. Generally, if the ownership is joint tenancy then either of the owners has full authority. However, if it’s tenancy in common, both signatures are required.
You can refinance with someone who is not on the title if the lender allows cosigners. Cosigners aren’t typically added to titles but guarantee the loan, which can help you qualify and get better rates.
If you want to take over someone else’s car loan, their loan would need to be assumable, which is rare. In most cases, you’ll need to get a separate loan in your name and use it to buy the car. The seller can then use the funds you provide to pay off their outstanding balance.
You’ll typically need to sell the car to your business. Your business can buy the vehicle using a credit product, such as a business auto loan or credit card. You then use the funds to pay off your personal auto loan and transfer the title to your business and your business pays off the remaining balance.
Find out if dealerships can stop car refinancing, how to navigate the refinancing process effectively, and which parties to get involved.
