If I sell my car, can I transfer the loan?
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If you want or need to sell your car, you might be wondering if you can transfer the loan to the buyer. Usually, you can’t, but you do have other options. Read on to find out about how you can sell your car before you’ve paid it off, as well as some alternatives to selling your car.
Can a car loan be transferred to another person?
It might seem that transferring your car loan to the buyer would be the easiest way. But, in fact, this is generally not possible.
Lenders look at your income, debts and expenses, and credit history when they assess your loan application. This gives the lender confidence that you can afford to repay the debt. It also ensures they have met their legal Responsible Lending obligations to not put you at risk of financial instability.
Your buyer’s circumstances will be different from your own. So, your lender would need to assess them to decide whether they can afford the loan. That would involve a new application from the buyer and a new loan.
However, this doesn’t mean you can’t sell your car while you still owe money on it.
How can I sell my car before I pay off my loan?
Car loans run for about 5 years. A lot can change in that time. You might start a family, move home, change jobs, enter or leave a relationship, or start or close a business.
The car you bought a few years ago might not match your current needs. You might want to trade up or down, get rid of your car altogether, or just choose a different type of vehicle.
You don’t have to wait until the end of your loan term.
Your main options are outlined below. We’ll then talk about some alternatives to selling — in case you want to keep your car but need to change the terms of your loan.
Pay off the debt, then sell the car
If you have enough money, you can simply pay out what’s owed before you sell. Here are some ways to pay off a car loan faster.
But, besides the money, there is more to consider.
Some lenders will charge you an extra fee if you pay off the loan early. This compensates them for the interest they miss out on. Find out if a fee will apply and how much it will be. Check your documentation and talk to your lender.
Repay your loan using the funds from the sale
If you don’t have enough money to pay out the debt before the sale, you can use the funds from the sale to pay the balance. There are complications with this approach.
Most people are reluctant to buy a car that still has money owing. They are worried the lender might seek to recover the money from them by repossessing the car.
Even if you do find a buyer, they might insist on a lower price to compensate them for the extra risks and hassles involved.
One possible arrangement is to have your lender send a statement to the buyer detailing all the costs of paying out the loan. The buyer pays the lender directly and then pays you the balance of the purchase price.
Buyers will be wary of anything with a secured loan hanging over it. Careful buyers check if a security interest has been registered against the car. If you failed to pay off a secured loan balance, the lender would have the right to repossess the car from the new owner, leaving them without their money or the vehicle.
If you failed to pay off an unsecured loan, the lender cannot repossess the car. They will pursue you, not the buyer, for the money. It is therefore easier to find a buyer if you have an unsecured loan.
In summary, it is possible to repay your loan using funds from the sale, but it might be difficult to find a willing buyer. And that means you might have to settle for a slower sale and a lower price.
Can a car loan be refinanced?
If your reason for wanting to sell your car is because the loan no longer suits you, you could explore the option of refinancing instead.
Refinancing means you keep the car, but the loan changes. Refinancing can give you access to:
- Lower repayments — through a lower interest rate or paying off the loan over a longer period of time
- Fewer fees — through a better deal on fees
- Extra flexibility — through an arrangement that lets you put extra money in, when you have it, so you clear the debt faster.
However, refinancing doesn’t automatically give you these benefits, and it usually involves some costs. You will need to find and/or negotiate the new loan terms and then decide whether refinancing will benefit you or not.
You’ll need to find out:
- The cost of closing your current loan, including any early repayment fees
- The cost of setting up your new loan
- The new repayments and total costs (principal, interest and fees).
This means comparing what’s offered by different lenders. A broker can save you a lot of time here. Auto Loan Brokers can access better interest rates than individual customers, so they can often get you a better deal.
Can a car loan be consolidated?
Consolidating means combining all your debts into one loan. For example, you could roll your car loan and credit card debts into the mortgage on your home or into a single personal loan. There are pros and cons to think about.
On the upside:
- You can more easily see what you owe
- You only have one regular repayment to plan for
- You might save on fees
- If you consolidate into a mortgage, you might save on monthly interest.
On the downside:
- You will usually have to pay fees to consolidate your different debts
- You can end up paying for depreciating assets, like your car, for the entire period of your home loan — you don’t want the cost of paying interest on your car for 30 years
- You can undo the benefits if you start building up credit card debt again.
Consolidation can work in your favour, but make sure you know the costs involved.
Importantly, try to pay off the car portion of the debt in the same period your car loan was for. Otherwise, you could be paying interest on the car for decades, rather than just a few years.
You can read more about refinancing and debt consolidation here.
How do I decide?
Whether you need to change your car or change the terms of your loan, you have options. This article has given you some insights, but you need to consider your own circumstances carefully. If you owe money on a business car, you’ll need to think about some extra considerations, such as the consequences for your tax.
If you are looking to sell, refinance or consolidate your debts, make sure you understand your options, so you can make the best decision. A good starting point is to punch different loan details into an online calculator to see how they compare.
