With new car prices through the roof, a lot of people are turning to the used car market. And with that increase in demand, people are finding creative ways to buy and sell used vehicles, including taking over someone else’s car payments.
Taking over car payments means just what it sounds like: you take ownership of a vehicle and assume responsibility for paying off the loan associated with it. This can sound like a sweet deal, but it can also be complicated, and it’s definitely not something you should jump into without doing your homework first.
In this article, we’ll break down the process of how to take over payments on a car, highlighting the potential benefits and risks and providing a comprehensive guide to help you decide if it’s the right move for you.
What Does “Taking Over Car Payments” Really Mean?
When people talk about “taking over car payments,” they usually mean something called “loan assumption.” This is where one person agrees to take on the responsibility for someone else’s existing car loan.
It’s different than just buying a used car outright with cash or getting your own car loan. With loan assumption, the original loan stays in place. The buyer takes over the payments and ownership of the car, assuming the lender approves the transfer.
So, you have three parties involved:
- The seller, who wants to get rid of the car and their loan.
- The buyer, who wants a car and is willing to make the payments on the existing loan.
- The lender, who holds the loan and needs to approve the whole deal.
Is taking over car payments possible?
It sounds simple, but taking over someone else’s car payments isn’t always allowed, and it can be pretty complicated.
The lender has to approve the arrangement. Many car loan contracts actually prohibit transferring the loan to another person. The lender wants to be sure that whoever is paying off the loan is credit-worthy.
Taking over a car lease is a related option, but it works a little differently. With a lease, you’re essentially taking over someone’s rental agreement rather than a loan.
Steps to Take Over Car Payments on a Used Car
So, you’ve found a used car you like, and the seller is willing to let you take over their payments? Here’s a breakdown of the process, which can be a bit complex:
Initial Assessment and Communication
- Meet with the seller in person. Don’t skip this step! You need to thoroughly inspect the vehicle before committing to anything. Make sure to arrange the meeting in a public location, and it’s always a good idea to bring a friend or family member along.
- Have the current owner contact their lender. This is crucial. The current owner needs to contact the bank or financial institution holding the loan to find out if the loan is even assumable. Not all loans are. If it is, they’ll need to discuss the specific requirements for transferring the loan to you.
Gathering Information and Documentation
- Request a copy of the original contract. Get a copy of the original loan agreement from the seller. Carefully review all the terms and conditions, paying close attention to any clauses that might restrict the transfer of the loan.
- Organize your supporting documents. You’ll need to prove you’re a responsible borrower. Start gathering documents like proof of income (pay stubs, tax returns), a copy of your driver’s license, and any other financial information the lender might request.
Application and Approval
- Apply with the current lender. Once you’ve gathered all the necessary information, you’ll need to formally apply with the lender currently holding the loan. Complete the loan application thoroughly and submit all the required documents. The lender will then assess your creditworthiness, income, and overall financial stability to determine if you qualify to assume the loan.
- Await lender approval. This is the waiting game. Be aware that even if the original loan was at a certain interest rate or had specific terms, the lender might offer you different terms based on your credit profile. So, be prepared for potentially different interest rates, payment amounts, or loan durations.
Key Considerations Before Taking Over a Car Loan
Before you commit to taking over someone’s car loan, consider the following:
Financial Implications
- Can you afford the payments? Make sure the monthly payment fits comfortably into your budget.
- Is the car worth the loan payment? Check sites like Kelley Blue Book and Edmunds to get an idea of the car’s market value. Avoid taking over a loan where the car is “upside-down,” meaning the owner owes more than the car is worth.
Vehicle Condition and History
- Will you be able to keep the car long enough to pay off the loan? Think about the car’s reliability and what kind of maintenance costs you might be facing.
- Check for warranty options. The average factory warranty covers a vehicle for three years or 36,000 miles, but some manufacturers offer longer warranties, up to 10 years or 100,000 miles.
Loan Terms
- Loan assumption doesn’t guarantee you’ll get the same terms as the original loan.
- Depending on your credit, your interest rate could be higher or lower than the original borrower’s.
Alternatives to Taking Over Auto Loan Payments
If assuming someone else’s car loan doesn’t seem like the right fit, there are other options to consider. Here are a few:
Selling and Trading
- Sell the vehicle. The original owner can sell the car outright and use the money to pay off the existing loan.
- Trade it in. The original owner might consider trading the car in at a dealership. The trade-in value would then go toward paying down the loan balance on the old car, and the owner could drive away in something new.
Financial Assistance
- Ask for help. A family member or friend might be willing to cover some of the payments. Consider having a co-signer take responsibility for the loan.
- Ask for a deferment. A deferment would allow you to temporarily postpone payments. Keep in mind that interest will continue to accrue, even during the deferment period.
Loan Modification
- Refinance. The original owner could try to refinance the auto loan, obtaining a new loan with better terms to pay off the existing loan.
- Take out a personal loan. An alternative would be to take out a personal loan to pay off the auto loan, although it’s important to consider the interest rates and repayment terms before making a decision.
Other Options
- Voluntary repossession. The original owner could voluntarily return the vehicle to the lender. Be aware of the negative impact this could have on your credit score.
To Conclude
Taking over someone’s car payments is more complicated than just buying a car the usual way, so it’s important to do your homework and proceed carefully.
On the one hand, assuming a car loan lets you drive a vehicle without having to get approved for a new loan. You might also get lucky and take over a loan with favorable interest rates and terms.
On the other hand, you might inherit a loan with a high interest rate or find yourself owing more than the car is worth. Transferring the loan to your name can also be a complex and time-consuming process.
Before you agree to take over car payments, consider your financial situation, the vehicle’s condition, and the loan terms. Don’t be afraid to ask questions and negotiate the terms to your advantage.
And if you’re feeling unsure or overwhelmed, it’s always a good idea to talk to a financial advisor who can help you weigh the pros and cons and make the best decision for your unique circumstances.