Want Someone To Take Over Your Car Loan? Why And How To Do It
Do you need or want someone to take over your car loan payments? There are a number of good reasons to do so, but executing it properly can be a bit tricky. If you transfer the responsibility incorrectly, you may wind up with financial risk you didn't anticipate.
So when should you transfer your payments, and how should you do so? Here are a few answers.
When to Alter Payments
The most common reason that car owners want someone to take over payments is when they cannot continue to make them on their own. Life circumstances change, finances change, family situations change. These situations are normal, but they can often cause unexpected challenges involving caring for all your needs.
Inability to pay the loan isn't the only reason to make this move, though. If you want to give the vehicle to a friend or family member, you likely also want them to take over the finances. Similarly, if the vehicle will become a business vehicle, your business — large or small — should make the payments.
What to Avoid
For most people, the temptation is to take what's considered "the easy way" and simply ask the other party to write the checks each month. However, there are several downsides to this plan. Most importantly, the loan remains in your name, so you are legally responsible for it in its entirety. The other person can stop making payments with no certain legal consequences. You, on the other hand, are putting yourself at risk.
If you are transferring the vehicle to a business, you also may not be able to deduct the payments as a business expense on your taxes if the business is not also legally responsible for the debt.
How to Do It Right
So how should you make this transfer in the smartest way possible? Some lenders will allow you to transfer the loan to the other party without restructuring the loan itself. However, the lender is more likely to require you to get a new loan.
This is an excellent opportunity to seek out a better interest rate and lower payments since some of the loan balance will have been paid. The new loan is then used to pay off the old loan you took out, removing your financial responsibilities.
Transferring a car or truck to a new individual or business makes financial and legal sense in a variety of circumstances. If this is the right move for you, talk to your bank or credit union about the smartest ways to lower your financial risk and start moving forward with your personal auto loan.