Taking Over Car Payments - Everything You Need to Know
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Taking Over Car Payments - Everything You Need to Know

By Autolist Editorial | April 2, 2020

When you purchase a new or used car or take on a car lease, the assumption is that you will drive it for a specified number of years, but what happens if you need to get out of your loan? Maybe you weren't the smartest shopper when you took out a new loan for a car. Perhaps you bit off more than you could chew, or you agreed to an interest rate that was over the moon. After plunking down a down payment, you now find that your payment is anything but affordable. Can you get out of the loan without ruining your credit score? Maybe.

Circumstances change; jobs are lost, income is reduced, and life happens. The bad news is never welcome and not usually expected. If you find yourself, for whatever reason, unable to pay your monthly payment, you may feel like you're stuck between a rock and a hard place. The choices are slim. If you continue to fall behind on the monthly payments, your credit score will drop more than it already has, and you risk having the car repossessed.

As the car owner and the borrower on the car loan, your options are narrow. You could let a family member take over the car and make the payments to you, who, in turn, will pay the creditor. That may work, but the idea is concerning. Or, you could ask a friend to take over the payments and have sole use of the car. Is it possible? Yes and no.

To allow a friend to take over your car loan payments means a lot more than it sounds. No financial institution will let someone put the title of a car in their name and make the payments. That car is partly owned by the lender. If someone wanted to own the vehicle, title and all, they would have to apply for their own financing. In essence, they're 'buying' your car and getting their own financing. That creates added paperwork, registration, taxes, and depending on your state, sales tax.

How to Let a Friend Take Over Your Car Payments

If you're willing to trust your friend and let them take over payments on your car, it may be possible, although not altogether legal in some states. After handing the new owner the keys with a verbal agreement, they will send you a check every month for the payment. Your friend drives away in your car, and it isn't yours anymore. But in the eyes of your lender, it still is. Your financial institution expects the monthly payments whether your friend sends you the money or not. The possibilities of things going wrong don't stop with the payment. There are also insurance considerations, such as who will buy coverage, for instance.

Before you decide to take this arrangement on, do some research online concerning a written agreement you can tailor to your needs. This document is typically considered a sub-lease, and you may want to check with your lender or read the details of your auto loan. Lenders may not allow a sub-lease and view you in violation of the loan's terms. Once it's agreed on by you and the friend taking over your car payments, you both sign and hope all goes well. That can work out, but if they stop sending you money, you're not only stuck with a monthly car payment you can't afford, you may have to 'repossess' your car from this friend. This doesn't typically end well.

Other hazards with this agreement include an unexpected car accident involving your car your friend is driving. Now you'll have insurance to deal with, whose fault it was, damage and repairs, possible injuries, and you are responsible. No matter what, this would pose a difficult situation for you and probably not your friend. You could list them as a driver on your auto insurance, which would cause an increased monthly payment, and ask them to pay the difference. But if they aren't listed as an authorized driver, the costs will fall on you.

If this friend racks up parking tickets, unpaid tolls, or other infractions and doesn't pay them—you get the bill and the headaches that go with the court appearances. You are still the registered owner of the car, and the financial burden would be on you. And if your friend never told you about these tickets or court fees, your credit will be affected. The last consideration is the condition of your car. Will this friend take care of your vehicle like it's theirs? What if they back into a phone pole and never let you know, leaving the dented bumper the way it is? Any damage they cause will devalue the price you could get in the future if you need to sell the car outright.

There is no way to guard yourself against this happening. You could write it into the agreement, but it may not be enforceable unless you go to court. All in all, letting a friend or sometimes even a family member take overpaying your auto loan is almost as risky as that monthly car payment you can't make. It may be time to talk to a credit adviser and explore other options to minimize your amount or hold off the collection agents until you can sell the car to a private buyer.

What If You Are the One Taking Over a Friend's Car Payment?

If the situation is switched and a friend of yours asks you to take over their monthly payment in exchange for driving their car, you'll want to consider all the options to protect yourself. Be sure your friend has an agreement you can both look over and customize for your exchange. You'll want notice before your friend takes the car back so you can obtain another vehicle. Have them include a guarantee the money you send them every month will go to the car loan. If they keep the money, you may be dealing with a midnight raid from a car repossession company.

Consider getting your own insurance for the car. Auto insurance companies may allow someone to get insurance for a vehicle that isn't registered in their name when they are informed about the situation, but this is not true in all states. If your own auto insurance company approves this arrangement, you're better protected in the case of an accident. Also consider the small things that may not make it into a written agreement. Who's responsible for maintenance and oil changes? Can you have repairs done for mechanical break downs? What about modifications made to the vehicle? Those boundaries should be clearly outlined.

Is This A Good Idea For Any Car Owner?

The success or failure of someone taking over your car payment and having use of it, or you, yourself taking a friend's car in exchange for making the payment is a messy agreement with many possibilities for misunderstandings, financial loss, and even the end of a friendship. While this arrangement is possible, the smartest idea may be to find any other way to make your monthly payments, refinance your loan, or sell your car.