For many people in Canada, it is likely that they will need an auto loan to be able to afford a new car. An auto loan, or a car loan, is a type of personal loan specifically designed for buying a new car. There are some requirements for a car loan, as with a personal loan, including a good credit score, regular income, and a driver’s license.
Auto loan transfers are a much-searched-for topic in Canada, and all the information can seem overwhelming. If you’ve decided to upgrade your car or don’t need it anymore, you may be looking to transfer your car loan to another person. If so, we’ve gathered all of the information you’re going to need below.
Take a look now to find out how to transfer a car loan to another person.
How to Transfer a Car Loan to Another Person?
In Canada, you may transfer car loans to another person. While you may want to do it yourself, we always recommend having a car financing company help you to limit the amount of financial loss.
The person who takes over your car loan needs to be approved by the lender, which means they’ll need to meet the lender’s requirements. This may include a minimum credit score, income to cover monthly payments, and more.
In addition, while the other person will take over the loan balance, you may be required to pay a fee for ending your contract early. Not all lenders require this fee, so it is worth checking your contract beforehand to see if it is worth doing the loan transfer.
Ways to Transfer an Auto Loan
So, how can you transfer a car loan to another person? Well, there are actually a few ways of performing a loan transfer. We’ve taken a look at them below.
- Switch lenders: This is a common way that people transfer their car loans to another. This way, a new loan is issued by an entirely new lender to the new person. Switching your lender means that the two lenders may interact and solve the matter between them, taking the burden off you.
- Transfer a car loan to another person with the current lender: You may be able to speak with your current lender and work out a deal where a new person pays off the rest of your loan payments. As mentioned above, they will need to meet the loan requirements of your lender to undergo an auto loan transfer.
- Sell your car: This is another common method of transferring a car loan to another person and simply requires you to sell your car and the new owner will take on your old loan. You will need to ensure that this is okay with your existing lender before you transfer ownership and you may still have to pay early repayment fees. Most lenders will likely agree to this transfer, but if the lender won’t, you could sell your car and use the cash to pay off your current loan too.
Pros and Cons of Transferring a Car Loan to Someone Else
Whether transferring the car loan and getting a completely new loan with a new person or sticking with the same lender, transferring your car loan to another has some advantages. These include:
- You will no longer have to meet monthly payments. This is particularly useful if you’re transferring a car loan because you can no longer afford it.
- You can buy yourself another new or used car using a new car loan. In this case, you may consider selling your old car and moving the previous loan to the new owner.
- You may be able to improve your credit score by showing faster repayment. This could be useful if you have a poor financial history and are trying to recover it.
While there are benefits to seeking to transfer a loan, there are negatives to the transfer process which you must consider first. These include:
- Finding another person suitable to take on your car loan may be difficult. Remember that the new person must meet all of the requirements set out by the lender, so if they have bad credit, they may not be accepted.
- Positive equity will be lost on your car value.
- You are likely to lose money when transferring a loan, whether to repayment fees or because of the interest rate.
- It takes time and effort, even with the help of a financial advisor.
A Note on Equity
When transferring an auto loan, you can either lose or gain money depending on the equity you have in your car. We’ve explained this concept more clearly below.
Positive EquityIf the car’s value is more than the amount that you owe, you’re likely to lose money if you transfer your auto loan. In this case, it may be in your best interest to simply refinance or sell your car to pay off the debt.
Negative EquityThis means you owe more than the car is actually worth. Transferring this loan to a new owner will help to save you money.
It is possible to transfer car loans in Canada. There are a few ways to do it and we recommend working with financing experts to get it done quickly and efficiently.
If you’re looking for a car financing company to help you to transfer a loan, then get in touch with Car Loan Masters today. We’ll be happy to help you out!