Is it Possible to Transfer an Auto Loan?

Often when an individual purchases a new vehicle, he will take out a loan from a finance company. The finance company provides the individual the money necessary to purchase the car and, in return, the individual is required to pay back this money, plus interest, with the car acting as collateral. However, just as with a loan for a house, an individual with an auto loan is often able to refinance that loan with another lender.

Auto Loans

An auto loan is not just an agreement between a borrower and a lender but, for the lender, it is a revenue-generating asset. The person who holds title to a loan, like any other debt, is legally entitled to a series of payments on the debt. Like other financial assets, the auto loan is transferable. One lender can purchase the debt from another lender, either at the behest of the lender or, in the case of refinancing, the borrower.

Refinancing

When an auto loan is refinanced, one lender buys the loan from the loan's original issuer, paying back the remaining balance on the original loan. After the original loan is paid, the new lender issues a different loan to the borrower. In this sense, the debt obligation for the car is transferred from one lender to another. Often, the original lender will have it written into the loan contract that he receives a fee when this occurs, called a prepayment fee.

Resales

In addition to refinancing, auto loans can also be transferred from one lender to another in the way that two investors would transfer a security. Although the secondary auto loan market is not nearly as active as the market for mortgages, some investors will buy auto loans as investments. If a person defaults on an auto loan, some finance companies will sell the debt to a collection agency for a cheap price as a way of recouping some of the loss.

Considerations

An individual who is paying back an auto loan has no control over the party to which he pays back the money. If the loan is sold to another party, the individual will be obligated to make payments to the new owner. If a loan is transferred, even in the event that the original lender goes bankrupt, the borrower is still required to pay. Theoretically, an auto loan could have a large number of owners over its life.