Can somebody take over my car payments?
Selling a car is a confusing, intimidating, time-consuming process, filled with uncertainty. Where should you list your car for sale? What price should you set? What paperwork do you need? Are you getting scammed?
If you financed your car, there is one more complication: What do you do about your car loan? Many car owners assume somebody else can simply start making your car payments for you. Unfortunately, selling a car with a loan is not as easy as getting somebody to take over payments for your financed car.
Is it possible to take over a car loan?
Probably not. When you take out a loan to buy a car, the DMV records a lien against the title. If there is a lien on the title, you almost certainly cannot "pass on" your loan along with your car and have somebody else make your payments.
Why not? Simply put, because your lender won't let you, and it's probably against the law.
Your lender prohibits it
If you have an auto loan from a bank, credit union, or other financial institution (including dealer financing if you bought new), your loan contract probably prohibits passing on your loan to somebody else.
Here's an example from my own loan agreement with my local credit union:
You promise not to sell or lease the Property until the loan is repaid.
You will be in default if you break any promise you make under this Agreement.
When you are in default, we may demand immediate payment of the outstanding balance of the Loan without giving you any advance notice and take possession of the Property.
If I let somebody take over my car payments, my credit union would not only repossess my car, they could demand immediate repayment of the entire outstanding balance of my loan!
Your state prohibits it
Even if your lender does not explicitly prohibit taking over payments, your state probably does not allow it. For example, the Florida DMV warns sellers:
In Florida, a vehicle cannot be legally sold in a private sale if there is an existing lien. For the vehicle to be legally sold, the lien must first be satisfied. Once the lienholder reports to FLHSMV that the lien has been satisfied, the title can be transferred.
In other words, when you sell your car, you can't just hand off your loan to the new owner.
What happens if somebody else makes your payments?
Let's say, despite the advice above, you reach an informal agreement with someone to take over payments on your car. What could go wrong? Actually, a lot.
Your credit score is at risk
If the buyer misses a payment, it hurts your credit score, since the loan is still in your name. And if your lender demands payment in full and repossesses the car after a missed payment, you're still responsible for the balance of the loan, minus whatever the lender gets at auction for the vehicle. Essentially, you would be forced to pay for a car you don't even have, and it'll hurt your credit score to boot!
You are still responsible for the car
Even if your buyer diligently makes every payment on time, the car is still legally yours. That means if it gets parking tickets, gets towed, is involved in a crime, fails emissions tests, or acquires a mechanic's lien, you are on the hook. Since you have an informal, probably-not-legally-enforceable agreement with the buyer, it's going to be a costly, time-consuming, and probably futile ordeal to get your buyer to pay for those parking tickets or emissions system repairs.
Yes, you can sell a financed car
It's not possible to have somebody take over your loan payments, so what do you do if you no longer want to make payments on your car? Fortunately, it is possible to sell a financed car as long as you “satisfy the lien” before transferring your title. There are basically four ways to do this:
- Pay off your loan before you sell
- Use KeySavvy to sell your financed car private party
- Trade-in or sell to a dealer
- Work with your lender to sell to a private party
Below is a brief summary of these options, but you can read more about the pros and cons of each option in our How To Sell a Car With a Loan blog post.
Pay off the loan
Paying off your loan in advance is the traditional way to satisfy the lien and sell your financed car. It usually takes several weeks for your lender to process your payoff and send you the title or lien release, but this simplifies your future sale. If you have the cash on hand and don't mind waiting, this is a good option.
Use KeySavvy to sell private party
If you can't or don't want to pay off your entire loan balance before you sell, you can still sell private party if you accept payment through KeySavvy.
KeySavvy pays off your loan as part of your sale, so you can legally sell your car to a private party without paying off your loan in advance. You also don't have to wait for your title from the bank before you sell, so as soon as you and the buyer agree on a price, you can proceed with the transaction.
Sell to a dealer
If you have a loan and are planning to buy another car from a dealership, selling to the dealer is often a good option. You'll sell your car for less than you would private party, but if you live in a state with a trade-in sales tax credit, you'll recoup some of that in tax savings.
Work with your lender
You can also work with your lender to coordinate a loan payoff and title transfer with your buyer. This can be very complicated and is usually only possible with local banks and credit unions.
The fine print
There can be downsides to selling a car with a loan, so you should read the fine print in your loan agreement and talk to your lender. It is possible for auto loans to have prepayment penalties, which charge you a fee for paying off your loan early. If you're “underwater” (the sale price of your car is less than what you owe), you'll have to make up the difference in full when you sell your car.
Even though you can't have somebody take over your car payments, there are more options than ever to sell your car and get out of your loan. Happy selling!