When you find yourself no longer able to make your monthly car payments, you turn to ways to get out from under the vehicle. Many young couples might want to look to a third party to take over payments on their car. You cannot transfer an auto loan contract between people. You may consider a sub-lease, in which the vehicle owner leases their rights to you in exchange for you taking possession of the vehicle and the monthly payments. There are many risks associated with this type of informal arrangement and it may violate the terms of your original loan contract.
Whether someone can take over the payments on your financed vehicle depends upon the agreement you have with your lender.
Auto Loans and Contracts
Car loans are legal contracts you enter into with a creditor. That creditor reviews your income and credit profile to determine whether to extend you credit. In return for the money, you make monthly payments that include a pre-determined amount of interest over the life of the loan. This loan contract outlines exactly how much you will pay over the life of the loan, the type of insurance you must have on the vehicle and authorization to put a lien on the vehicle's title until the loan is paid in full.
Sub-Leasing a Vehicle
Because auto contracts are very personalized, a third party cannot simply take over the loan contract in your stead. You may enter into a third-party sub-lease agreement where, in exchange for the vehicle, the individual takes over your monthly payments. Sub-leasing is not recommend as there is much risk involved in this type of financial agreement. You want your name off the vehicle if you are no longer driving it or in possession of it. Get everything in writing if you decide to go this route.
Risks of Sub-Leasing a Vehicle
While sub-leasing a vehicle is possible, you risk your credit profile if that person fails to make timely payments on the car note. If something happens to the vehicle while in her possession, you become responsible for the balance on the car note. In fact, you may end up violating your loan contract if there is a clause that states you cannot sub-lease your vehicle to a third party. Review your auto loan agreement before entering into a sub-lease agreement.
Selling Your Car
The easiest way to go about transferring your payments is to sell the vehicle to the third party. She procures her own vehicle financing using her own credit and income to back the loan. You need to contact your lender to get the exact payoff balance. After she gets her loan approval, she delivers you a check to pay off the loan balance. Your creditor issues a lien release and you sign over the title to the new owner. She takes possession of the vehicle and pays it off under the terms of her separate loan agreement.
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