Is it possible to transfer a car loan to another person?
The short answer is: No, you can't just transfer your loan to another person. A car loan is a legally binding agreement between a borrower and a lender. It won't be possible to substitute the original borrower with a new person entirely.
So, what happens if you want to sell your car while you're still under finance? There are ways you can sell your car while it's still under finance. In this article, we detail what you could do if you find yourself in this situation.
Why can't you transfer a car loan to another person?
Before approving a car loan, the lender will review the borrower's finances and assess their ability to pay off the debt. When lenders assess creditworthiness, they're doing so specifically for the borrower applying for the loan.
Most lenders are required to comply with ASIC’s responsible lending conduct obligations. Lenders must not enter a credit contract with a consumer if it is unsuitable for the consumer. If the lender were to allow you to simply transfer your car loan into someone else’s name, they would be failing to meet their obligation to carefully assess the individual’s financial position and determine whether the loan would be suitable for them.
Can I sell my car before paying off my loan?
If the lender has a financial stake in your car, you will ultimately need permission from the lender before you can sell it.
The car is 'security' or collateral, and your loan agreement gives your lender certain rights in relation to the car. It cannot be sold or traded in without repaying the loan in full to the lender or making repayment arrangements with the lender – the principal, or balance, the consumer owes the financier.
There are options if you need to sell your financed vehicle before the end of the loan term. These are outlined below.
Use savings to repay the balance
If you are able to dip into your savings and pay off your car loan before listing your car for sale, you may find it easier to attract serious buyers. This means your vehicle will no longer be encumbered.
This option can also make for a smoother transaction if selling the vehicle privately, as the buyer can simply make the payment directly to you without having to factor in the finance that remains owing.
Utilise proceeds from sale to repay the balance
If you are not in the position to be able to pay out the loan before selling your car, you could use the money you make from the sale to help pay it off. Just ensure that you are transparent with potential buyers when selling a car that’s under finance.
Your lender will likely send you a final payout letter which includes the details of how much is owing on your loan, and the account details of where to pay the funds to finalise your loan. You can provide this letter to the buyer so they can make the payment directly to your loan account, giving them peace of mind that the finance is completely paid out.
If you are looking to trade-in your financed car to a dealership, the situation requires you to negotiate terms with both your lender and the car dealership. Negotiating across the two parties helps determine if your current car’s trade-in value can cover your outstanding car loan balance.
Final Words
To help avoid the need to sell an encumbered car, take a look at our car loans with competitive rates that may offer more manageable repayment solutions for you. Check out loans.com.au ’s car loan products with competitive interest rates and useful loan features. Chat to one of our expert lending specialists to apply for a car loan or to talk about your financing options today.
Find out in under 2 minutes if you qualify for one of our car loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
