Although transferring a loan to another person is not common, there are exceptions, depending on the type of loan.
If you’re dealing with debt, you may at some point question whether or not you can transfer a loan to someone else. You may want to transfer your loan to a family member who’s come into money and offered to take it over. Or, you may consider taking over your child’s loan to help them out.
There are numerous reasons someone may want to transfer a loan, but, unfortunately, it’s not quite as simple as it seems. In this article, we’ll go over different types of loans and what it would take to transfer them to another person.
Transferring personal loans
Personal loans (also known as installment loans or consumer loans) can’t be transferred to another person. If you took out a personal loan, you were given the cash up front, an interest rate and loan terms based on your credit score. Unfortunately, most lenders won’t allow a personal loan to be transferred because moving the loan to another person could be risky for the lender.
But, if you have a cosigner or guarantor on the loan contract, they share the responsibility of the loan. (This also means that if you default on the loan, your lender will reach out to your cosigner for payments). This is the closest you can come to transferring a personal loan to another person.
Of course, you can potentially transfer your loan to a credit card, but that’s a separate issue. Credit cards usually have much higher interest rates than personal loans, so only take this route if you have a promotional zero interest period on balance transfers.
Transferring car loans
Whether you’re trying to sell your car or transfer a loan that has become difficult to maintain, the good news is that you can transfer a car loan—in certain circumstances.
How do car loan transfers work?
Car loan transfers can be complicated because each loan has its own terms. You can’t transfer the loan directly—instead, the new borrower will have to apply and be approved by the lender to take over your existing loan.
Typically, the process looks like this:
1. Review the contract
First, you’ll have to read your current contract to see if a loan transfer is even possible. (Watch out for any mention of fees for transferring the loan!) Check for what details qualified you for the loan, such as your credit score and income level. In most cases, the lender will only allow you to transfer your auto loan to someone with similar or better qualifications.
2. New lender applies
Once you determine that you can (and want to) move forward with the loan transfer, the next step is having the new borrower apply to take over your existing loan. Most lenders want to see someone with a credit score and history similar to yours.
Keep in mind that the borrower will be taking over your exact loan. This means that the time frame on the loan doesn’t start over. If you had 12 months left on the auto loan, the new borrower will still have 12 months of payments.
Some lenders won’t allow a loan transfer, but they may allow you to add a new cosigner to the existing loan.
3. Title modification
If the loan transfer goes through, you and the new borrower will need to visit the DMV and change the title to the new owner.
If you can’t transfer your car loan, try refinancing
Unfortunately, most of the time car transfers can be difficult to get approved for. If you can’t transfer your loan to another person, you can also refinance your loan yourself. When refinancing, you can potentially:
- Secure a lower interest rate, bringing down your monthly payments
- Extend your loan period
You can refinance with your existing lender, but it’s more common to transfer the existing loan to a new lender. Heads up: you have to apply for refinancing and typically need solid credit to be approved. And you’ll only get better loan terms on the refinance if your credit score has improved since you took out the initial car loan.
Transferring a mortgage loan
The only type of mortgage that’s transferable is called an assumable mortgage loan. (Both FHA and VA loans are assumable loans.) Assumable loans have nothing in the contract that prevents a person from transferring the loan to a new borrower.
The good news is that you still have options even if you don’t have an assumable mortgage. Like car loans, you can potentially refinance your mortgage (instead of transferring it) if you can’t afford the payments.
How does an assumable mortgage work?
With an assumable mortgage, the new borrower will need to apply and qualify for the mortgage. A lender gave you the mortgage based on your credit factors (credit score, income, debt levels, etc.). So, the only incentive for lenders to approve a mortgage transfer is if it’s going to a borrower who can match or exceed your credit, income, and isn’t an additional risk.
For the new borrower, applying for a mortgage transfer is similar to applying for a conventional mortgage. You’ll have to request the transfer with your lender, who’ll help the new borrower start the application process. It’s likely that you—the original lender—will have to pay a fee for the transfer.
Avoid unofficial transfers
If you haven’t been approved for a loan transfer, you might be considering an unofficial transfer. This is where you come up with an agreement that the mortgage remains in your name and the new borrower just makes the monthly mortgage payment for you.
This can be risky for a few different reasons:
- Most contracts explicitly state that unofficial transfers aren’t allowed. If your lender was to find out you had this arrangement, you could be in breach of your contract. There could be legal consequences for violating your mortgage contract.
- If the new borrower decides to stop paying you the money, you’ll have a big problem on your hands. First, the loan is still in your name, so the missed payments will impact your score. Secondly, kicking someone out of a property (squatter’s rights) is a process that can take months. Third, the lender will come after you for the missed payments since the loan is still technically yours.
- If the new borrower stops making payments and you can’t afford to make up the difference, your home could be foreclosed on. If the housing market is down and the foreclosure sells the property for less than your outstanding mortgage balance, you could owe the lender the difference.
Remember there are better and safer options to an unofficial transfer, such as refinancing or selling your home.
Learn more about your loan options
When considering a loan transfer, the first step is to understand your specific loan and research your options. Even if a transfer isn’t possible, you almost always have other options available to you.
It’s clear that no matter what kind of loan you have, your credit plays a prominent role in the process. Improving your credit today can help you with current and future loans. A strong credit score will help you secure lower interest rates, better loan terms and faster loan approvals.
If you need help with your credit during this process, you can use credit repair services. CreditRepair.com can help you examine your credit history, file disputes for incorrect or false negative items and educate you on what it takes to maintain strong credit. Get help today!
Reviewed by Melissa Collins, Credit Consultant at CreditRepair.com.
Melissa Collins is a CXRF Advocate who has been with the company since October 2018. Melissa started as an advisor in member services assisting members with general credit questions, quickly moved to a position helping members with overdue balances. For the past year Melissa has been a part of the CXRF Team resolving escalated situations and creating a better member experience.
Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.