Refinancing a car loan can be a smart financial move, but what happens when you want to transfer the loan to someone else's name? Maybe you're selling the car to a family member or want to remove your ex-partner's name from your loan after a breakup. Thankfully, it's possible to refinance into someone else's name, which means you have more flexibility with refinance options. The modern lending landscape has more flexibility than ever to meet the needs of even the most unique situations.
Whether you used a credit union or a bank for your car loan, you have options. In this article, we help you explore the various choices available to you, answering the question, "Can you refinance a car loan into another name?" and telling you everything you need to know about this process. We start by briefly explaining what refinancing is so you can brush up on terminology and then cover the specifics of refinancing a new loan or existing loan into someone else's name.
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Can You Refinance a Car into Another Name?
Before we dive into refinancing a car loan in someone else's name, let's review what car loan refinancing is. Refinancing involves replacing an existing car loan with a new one—usually one with better terms. This can mean a lower APR, a longer loan term, or lower monthly payments. Refinancing aims to save money on interest payments over time, and transferring a loan into someone else's name can sometimes help you secure a better interest rate or terms based on their creditworthiness. Some lenders also allow car lease refinancing.
Who Can Refinance?
Anyone with an existing car loan may be able to refinance it. However, your eligibility to refinance depends on several factors, including your credit score, income, the model year, and the car's value. You may not qualify for refinancing if you have a low credit score or a high debt-to-income ratio. It's also worth noting that some lenders may not allow you to refinance a car loan in someone else's name, so check with your lender before proceeding.
So, the short answer is yes, you can refinance a car under another name, but there are a few things to consider first. Let's dive into the requirements.
Factors to Consider Before Refinancing a Car Loan in Another Person's Name
Before refinancing a car loan in someone else's name, you need to think about a few things. Lenders typically want to know about the creditworthiness of a new buyer, and you'll want to know how the transfer will affect your credit. Here are the main factors to consider:
Creditworthiness of the New Borrower
The new borrower will need to qualify for a loan on their own, meaning they'll need a good credit score and a reliable income. If the new borrower doesn't meet the lender's requirements, the lender may not approve them for the loan. That means the current loan will stay in your name, and you'll still be responsible for making payments. Therefore, when transferring a loan, choosing someone with solid credit and a reliable income is important to ensure you get the deal you want.
Effect on Your Credit Score
When you refinance a vehicle loan in another person's name, it can impact your credit score. Your credit score may improve if the new borrower makes payments on time. However, if they miss payments or default on the loan, it could hurt your credit score. Your credit score helps lenders determine whether you can meet the financial obligations of financing, so it's important to keep it high for future borrowing. Again, it's important to choose carefully when refinancing into someone else's name so you don't end up paying for their mistakes.
Fees and Penalties
Some lenders may charge fees or penalties for transferring a car loan to someone else's name, so be sure to read the fine print before moving forward to avoid any unexpected costs. Fees and penalties can add up quickly, and most lenders will charge a "loan transfer" fee or something similar. If you're unsure, you can always ask your lender for more details about their refinancing fee structures. These costs differ from lender to lender, and certain factors, such as your credit score, can affect them. The lender will usually include everything you need to know on the refinance loan application.
How to Refinance Your Car into Another Name
If you've decided to move forward with your refinance plan, it's time to learn how. Requirements vary by lender, but the steps involved in the process are usually pretty similar. Here's a checklist to follow when refinancing your vehicle in someone else's name:
Step 1: Request Refinancing Details from Your Chosen Lender
The first step in refinancing a car is to find a lender that offers auto loan refinancing. You can sometimes refinance with the same lender, but you should also research options online. Look for lenders that offer competitive interest rates and favorable terms. You're trying to get the best possible deal, so don't settle for the first offer you get. You'll want to look closely at the lender's refinancing options, including the specific terms that might affect your credit score. If you have any questions, don't hesitate to ask the lender for clarification.
Step 2: Determine the Car's Eligibility
Once you've identified a lender, check their eligibility requirements to see whether you meet them. Lenders generally require a minimum credit score, a certain level of income, and proof of car ownership (i.e., the vehicle title). They also want to know certain details about the car, such as the mileage, make and model, and model year. Some lenders will even inspect the vehicle to ensure it actually runs and is a worthy investment. The lender will usually list their eligibility requirements in a separate document, but you can also ask about any specifics.
Step 3: Find Someone to Refinance the Car
Of course, if you want to finance in someone else's name, you need to find another person to take on that responsibility. You can start with family and friends, but you can also consider buyers looking for a deal in your area. You might be able to find someone who needs a car right away or who doesn't have the money for down payments. Consider who you choose carefully, as how they manage the payments can affect your credit score.
Step 4: Apply for Refinancing and Complete Any Necessary Paperwork
To apply for refinancing, you'll first need to gather certain documents, such as your driver's license, proof of insurance, current registration, and title of the car. You may also need to provide proof of income and employment. After you've gathered all the necessary information, you can apply for refinancing with the lender by completing an application form and providing the required documents.
After submitting your form, the lender will review your application and approve or deny your request. If approved, the lender will provide a new loan agreement with updated terms.
Step 5: Notify the Department of Motor Vehicles
After refinancing, you must notify the Department of Motor Vehicles (DMV) in your state of the change in ownership. You can typically do this by submitting the new title and registration to the DMV. You may need to go directly to the DMV office in your area, though some states now allow electronic transfers. Check your local DMV website for more details.
Alternatives to Consider
While refinancing in someone else's name can be a good option to get out from under a car loan, it's not always a practical choice. Some lenders don't allow it, and the fact is that it's a risk. If the person you refinance under defaults on the loan, you can be held accountable, and if this happens, your credit score is threatened by something beyond your control. If you're struggling to meet payments, consider these alternatives to refinancing with another person:
Refinance with a Cosigner
Sometimes, finding a cosigner for a loan is better than refinancing under someone's name. If you have poor credit or limited credit history, you may not qualify for a competitive interest rate on your own. However, if you have a cosigner with a good credit score and financial history, the lender may offer a lower interest rate based on the cosigner's creditworthiness. You can also use this option to help build up your credit score, which eventually gives you access to better APR, short-term and long-term payment options, and other benefits.
Finding a cosigner is sometimes easier, too. Since the refinancing process requires a title transfer, you may have to go to the DMV office and pay a fee to transfer the title. With a cosigner, you're still responsible for the payments, but you have a fallback should you have trouble meeting payments, and you only have to contact your lender.
Sell the Car
Even with so many refinancing options available, selling your car is still a viable solution. If you have multiple vehicles or access to public transportation, you may not need the car, and selling it can free up cash to pay off any outstanding debts or save for other expenses. It's important to remember that if you decide to sell the car, you'll need to pay off the loan before transferring ownership to the new buyer.
If you have negative equity in the car, you may need to pay the difference between the sale price and the amount owed on the loan. However, selling the car can give you more flexibility and help you avoid the additional costs of refinancing.
Use Your Car to Make Extra Money
If you're having trouble making payments, you can always use your car to make some extra money. There are more options than ever for making quick cash with a working vehicle, including:
Ridesharing: You can sign up to be a driver for ridesharing services, such as Uber or Lyft. You'll need a reliable car, a valid driver's license, and insurance. The flexibility and income potential are some of the main benefits of this option.
Delivery services: Many companies, such as Postmates, DoorDash, and Grubhub, allow you to use your car to deliver food or packages to customers. These companies typically offer flexible schedules and allow you to work when it's convenient for you.
Car advertising: Some companies will pay you to wrap your car with their advertising message or logo. This can be a great way to earn money passively while driving your car as you normally would.
Car rental: If you have a spare car you're not using, you can rent it to others through platforms such as Turo or Getaround. You earn money based on the number of days you rent the car out and the rental rate you set.
Event transportation: If you have a large car or van, you can offer transportation services for events such as weddings, proms, or corporate events. You can charge a fee based on the distance traveled or the number of hours.
The Bottom Line
Refinancing a car into someone else's name is an option, but it may not be the most practical choice. Consider all factors and alternatives before you decide to refinance, and be sure to research lenders and determine your eligibility before applying. Sometimes, the best thing to do is get out from under the car altogether.
Hearst Autos Research, produced independently of the Car and Driver editorial staff, provides articles about cars and the automotive industry to help readers make informed purchasing choices.
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