The first is if it is even possible to transfer the bad credit car loan, the second is whether it is a financially sound decision.
In this guide you will find all the information you need to make the best decision for your finances, whether you are transferring or taking over the bad credit auto loan.
Why Transfer a Bad Credit Auto Loan?
There are several reasons why transferring a bad credit auto loan might be a good idea. Sometimes the monthly loan payments can be harder to make than anticipated due to job loss or other unforeseen events.
Occasionally people are talked into “upgrades” at the Buy Here Pay Here lots, without considering how it will affect the amount of their monthly payments. Before long they are at risk for repossession, and this can have a devastating effect on their credit score.
Regardless of your reason for transferring your auto loan, you should be aware of the steps you need to take. This applies whether you are transferring the vehicle to a friend or dealership.
The reasons for taking over a bad credit auto loan also vary, but the most common is that the potential buyer doesn’t have the necessary cash to apply towards the purchase of a new vehicle.
How to Tell if a Bad Credit Auto Loan Can be Transferred
It is important to note that not all bad credit auto loans can be transferred, but this doesn’t mean that you are stuck with the payments. If the car loan cannot be transferred the vehicle can be sold. You will have to bring the person purchasing the vehicle to the dealership or financial institution so they can apply for refinancing.
If you can’t find the information you need in the contract, the next step should be to contact your lender. Not only will they be able to answer your question, some will even walk you through all the necessary steps.
How to Transfer a Bad Credit Car Loan
The difficulty of transferring a bad credit auto loan will depend on the lender, and their rules and regulations. In some instances it might only take a few minutes if the potential buyer has excellent credit, but this is usually not the case. Not everyone is fortunate enough to have someone ready to take over their high interest car loan, and this usually means that it will take more time before a qualified applicant is found.
When you are ready to transfer your bad credit car loan here are a few tips to help you get started.
- Transfer the auto loan to someone else
One of the easiest ways to “get out” of your high interest car loan is to transfer it to someone else. The potential buyer must have a credit score the same or higher than yours, and they will also have to show adequate proof of insurance. If you are considering taking over a car loan this might be an appropriate time to think about the benefits.
- You can avoid dealing with “pushy” salesmen.
- A down payment isn’t required.
- If you have a below average credit score, it might be the only way you can get purchase a vehicle.
- Decide on a new lender or staying with the original one.
This is an important decision to make since it can affect your credit score. In most cases it is best to stay with the original lender, and simply modify the loan. If this isn’t an option you can also choose to apply for financing from another lender that will pay off the original loan.
There are a few risks associated with using a new lender. Some auto loans come with penalties if they are paid off early.
You also want to take into account the fees that come with transferring an auto loan that don’t include penalties for paying it off early.
- Transfer all documents to the new vehicle owner.
All paperwork pertaining to the vehicle must be turned over to the new owner. State laws do vary on where the vehicle title can be legally transferred, usually at a local branch of the Department of Motor Vehicles or a licensed notary.
Before you leave the office it is crucial that you double check to ensure that your name has been removed from the car loan. If you are purchasing the vehicle, you’ll want to make sure your name is listed as the holder of the lien. Current emission and inspection paperwork should also be turned over at this time, along with any warranties that are transferrable.
How to Take Over a Bad Credit Auto Loan
Here are a few things that you will need to do.
- Check your credit score.
In order to be approved to take over a car loan your credit score must be the same or higher than that of the original owner. You could still be approved if it is lower, but at a much higher interest rate. In some cases it might not make good financial sense to accept the terms of the loan if the interest rate is too high. It could cause the loan to be significantly higher than the vehicle’s actual worth.
- Wait for the loan to be approved.
There is very little to do during this time, except to wait for word from the potential lender. Depending on the financial institution you can get a response almost immediately or it might take a couple of weeks.
If your credit score is significantly lower than the vehicle’s current owner, this might be the best way to purchase a car without having to pay high interest rates.
- Sign the necessary paperwork.
After the loan has been approved it is time to sign the paperwork, and both parties will need to participate. The seller will want to make sure that their name is removed from the lien, and yours is added in its place. Since the lender technically owns the vehicle until the loan is repair, the lien will also be in their name.
- Take care of DMV requirements.
You will have to show proof of insurance when you are registering the vehicle in your name, it will also help if you have copies of the latest emission tests and state mandated inspections. Once this last detail has been taken care of, you have successfully taken over a bad credit auto loan.
There are several advantages to transferring or taking over a bad credit auto loan, but there are also a few disadvantages that you should be aware of. For many people it is the right financial decision for them, and it can even have a positive effect on your credit score.