Back to GuidesBuying a used car is a great way to save a little bit of money while still getting a reliable vehicle that you can depend on every time you get behind the wheel. When purchasing a used car, you want to be sure that you are getting something with low miles and as little chance of problems down the line as possible. That usually means searching for something relatively new.
Unfortunately, when you look for used cars that are still fairly close to their manufacturing date, you might find that the sellers are still making payments on them.
When you encounter a used car that still has a loan, you may be tempted to simply take over the car payments. However, this can be a complicated process that may or may not be worth it in the end. Knowing everything you can about how to take over car payments on a used car is the best way to protect yourself and ensure that you are doing everything legally. With the right knowledge, you could end up getting a great deal on a car that will last you for many years.
Can You Take Over Car Payments?
Technically, you can take over car payments on a used car if the circumstances are right and you take the time to do everything correctly. However, it should be noted that the idea of taking over car payments is a bit of a misnomer.
Car loans can’t be transferred as they are. This is because the original car loan is an agreement between the lender and the borrower. There have been paperwork and credit checks that have taken place and the lender only agreed to lend the money to that one person.
When a person buys a car with a loan, a lien is put on the title of that car. This means that there is another party aside from the driver that can claim ownership of the vehicle. Because of this lien, the ownership of the car can not be transferred to another person without the expressed permission of the lienholder. This is what makes buying a used car and taking over the payments so complicated.
That being said, there are ways that you can purchase a used car that still has payments that need to be made. Knowing everything you can about the process and what goes into it, as well as the legality of it and what you need to do to keep everything above board, will help you through the entire process. It will also help you decide if it is something you want to do or if you would be better off getting your own loan for a new car or purchasing a different used car outright.
How to Take Over Car Payments on a Used Car:
If you have decided that you want to take over the car payments on a used car, it is crucial that you go through the proper channels and that you do everything correctly. In most cases, failing to notify the lender or the DMV of the purchase is illegal and can result in hefty fines for both the new owner and the seller. Making sure that both you and the person selling the vehicle do everything correctly is the best way to protect yourself and ensure that everything goes smoothly.
1. Have the Current Owner Talk to the Lender
Before the process can begin, make sure that the seller has spoken with their lender and has worked everything out. Not all financial institutions will be open to the idea of transferring the original loan over to a new buyer and you want to be sure that a consensus has been reached. In some cases, the lender will only authorize the deal if you agree to take out a loan yourself to pay off the current one. They may also be willing to allow you to simply pay off the loan with cash as long as an early repayment fee is included. If the lender wants you to take out a new loan, you will have to go through the same process that the original buyer went through.
2. Get Your Documents Ready
If you are going to be taking out a new loan, you have to make sure that all of your documents are in order. You will have to gather things like proof of income, which can be in the form of pay stubs or bank statements, as well as your driver’s license. You should also ask the seller to get a bill of sale ready. This document should include information like the odometer reading, the make and model of the vehicle, the VIN, and the model year. This will be essential when you go to transfer the car into your name at your local DMV.
3. Meet With the Seller
Meeting with the seller is one of the most important parts of the entire process. If a seller is asking for payments over the internet or if they want to be paid before you have even seen the car, this is a massive red flag. The odds are good that they are trying to scam you and that the car most likely does not exist. When you meet with the seller, be sure to take another person with you and meet in a public place. One of the best places to do this is in the parking lot of your local police station. Many stations have designated areas for transactions like this and it will be a good test of whether or not the seller is being honest and above board about the sale.
4. Get a Copy of the Original Contract
When you meet up with the seller, make sure they bring a copy of the original contract or allow you to contact the lender to get a copy yourself. This will give you a good idea of the loan agreement and information such as the interest rate and the length of the loan. However, you should keep in mind that your credit report and income may necessitate a new contract with different loan terms.
5. Transfer the Paperwork
Once you have signed a new contract with the lender, you can then transfer all the paperwork with the Department of Motor Vehicles. To do this, you will need the bill of sale, the car title with the seller’s signature as well as your own, and your identification. The DMV will have to produce a duplicate title, which can take several days or even weeks depending on where you live. Because of this, you should start the process as soon as possible after the sale has been made.
Alternatives to Taking Over Auto Loan Payments:
If the seller’s bank won’t allow you to take over the loan balance, there are a few different things you can do to work around it. However, you should check on the legality of these methods in your specific state and always stay in contact with the original lender to let them know what you are doing. This will ensure that everything is documented and that you are protected from fraud throughout the entire process.
1. Refinance as the Co-Signer
If you have a relationship with the seller, such as if they are a friend or close family member, you can get put on the title of the car by refinancing with the lender as a co-signer. One of the issues with this method is the fact that the seller will still be responsible for anything that happens with the car. For example, they will be legally responsible for any tickets you might get or accidents you get into. This is why it is essential that you have a good working relationship with the seller and that a mutually beneficial agreement is made.
2. Refinance Again as the Main Owner
After you have gotten on the loan as a co-signer, you can usually then refinance the loan again with yourself as the main owner of the vehicle. In most cases, you will have to wait anywhere between 6 and 12 months before you can refinance again. You will have to have a good credit score that is at least above 700 if this is the route you are going to take. You also need to be ready to pay extra fees throughout the process for things like the loan application.
3. Get Another Loan to Pay Off the Current Loan
One method that a lot of people use is getting another personal loan to pay off the existing loan that is currently on the car. Whether you get this loan with the current lending institution or get it from a different one will depend heavily on what the current lender allows. You will also most likely have to pay an early repayment fee for putting down what is left on the loan. However, once this is done, you and your new lender will be the only ones on the title and you can break free of the previous owner of the car. The seller can also rest easy knowing that you are fully responsible for the car.
Benefits of Taking Over Car Payments:
Car Quality
One of the main benefits of taking over car payments on a used car is the fact that you can get the vehicle you want. Sometimes, a deal is too good to pass up, especially if the car is something you have been looking for. Plus, if you buy a car that the owner is still making payments on, the odds are good that it is still in excellent condition. A used car that still has a lien on it will have very few miles and will most likely only be a few years old. This is a great way to make sure that your new car will be reliable and last you for many years to come.
Warranty
When you purchase a relatively new used car, it will most likely still be under warranty. Even though you will end up paying more for the fees and refinancing, the benefits and perks that come with the warranty could make it well worth the trouble and extra money. A factory warranty protects you from any issues that the car might have due to problems at the plant or design flaws. Plus, many of them come with maintenance coverage and extras like 24/7 roadside assistance.
Drawbacks of Taking Over Car Payments:
Complexity
Purchasing a car that still has monthly payments that still need to be made can be incredibly complex. In many cases, the lender will not even allow it or will make you just through hoops to make it happen. Sometimes, it ends up being a lot cheaper and easier to simply move on and pay for a used car outright with cash. Plus, you are opening yourself up to scams and problems whenever you get involved with auto loans and people you don’t know. For most people, it should generally be avoided if at all possible.
Depreciation
If a car is “upside down” on the loan, taking over the payments is a very bad idea. Being “upside down” on a car loan means that the car has depreciated and is now worth less than the loan amount. In these cases, taking over the payments will end up costing you a lot more money than you could get by selling it once it is paid off. All car prices depreciate, but owing more than it is worth is never a good position to be in.
Can You Take Over Car Payments With a Gentleman’s Agreement?
In many cases, people wonder if they can simply take over the payments from the seller with a gentleman’s agreement. This means that you will just pay the monthly payments to the seller and they will pay the bank until the entire thing has been paid off. There are many reasons not to do this but the most important is the fact that you will not truly own the car for the entirety of the loan.
Anything that happens while the car is in your possession will be the responsibility of the seller. This can present problems when the time comes to pay the registration and auto insurance on the vehicle and if you end up getting any tickets.
The other major reason why a gentleman’s agreement is a bad choice is the fact that you are missing out on all the benefits that come with having an open account and making payments on time. The original owner will be getting the boost in their credit rating that you deserve and they will be able to get loans in the future that you should be entitled to, even if they originally had bad credit.
On top of all the other potential legal issues and the possibility of repossession that come with a gentleman’s agreement, you will not be getting the advantages of making timely car loan payments on the vehicle.
Final Thoughts
If you find a car you like, it can be tempting to try and take over the car payments from the seller. However, this process can be incredibly difficult and in some cases, an under-the-table loan transfer can even be illegal.
Knowing how to take over car payments safely and legally is a great way to protect yourself and make sure that you are getting the best possible deal on the transaction. With the right information, you can get a used car you love without assuming all the risks.
