Car Finance Canada
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Can You Transfer an Auto Loan?

The short and quick answer to this question is no, you cannot transfer your auto loan to someone else. Many people don’t know the ins and outs that surround what they can legally do once they’ve taken out a car loan, especially the restrictions on things like loan transfers. If you have yet to take out an auto loan and are just wanting to know every single catch before you sign the dotted line, you can either keep reading or ask your auto loan lender about the restrictions that will be set in place. However, if you are either buying a car for someone else or wish to sell a vehicle that isn’t completely paid off yet to a friend or acquaintance, there are ways around the obstacle of an auto loan that isn’t quite eradicated yet.

Let’s say you bought a vehicle 2.5 years ago and are on a 4-year payment plan with your lender, but after 2.5 years, you’re ready to move on to bigger and better things — or perhaps the opposite. You’ve found a trustworthy friend to whom you can sell your car, so the best way to go about it is to have him give you the money each month so that you can continue paying off the loans, right? Wrong. What if your friend sends checks to your lender on your behalf? Also not wise. No matter how well you know and trust the person buying your vehicle from you, you should never go about things so haphazardly. The new buyer is not directly responsible for the payments, so if he or she misses a payment, guess whose credit takes a hit?

What you can do instead is swap your loans. That means your friend can take out a loan for the purchase price of the vehicle and pay you directly with it; that way, you’re able to take the money and completely pay off your outstanding loan all at once, leaving the friend who bought the car now responsible to pay off a lender — as it should be. Again, no matter how close of a relationship you have with your buyer, always take the safe route. Things like this can detrimentally and irrevocably affect a friendship, so it’s best to not cut corners.

Of course, the friend — or acquaintance — buying your car must meet the standard auto loan requirements, and the better their credit, the cheaper and easier-to-find their loan will be. In addition, they’ll need proof of residence and employment and to be prepared to take over the insurance policy. Insurance policies can be transferred from an old owner to the new by some providers, so check in with yours to see if this is a possibility before you over-complicate things.

As you can see, though the original answer is no, the alternative of performing a loan swap really isn’t too complicated and it ensures security for all involved — the one selling the car, the one buying it, and the lender.