How to transfer a car loan to another person
Before thinking of transferring the loan to another person, you must ensure that you have gone through the details of your loan documents.
Although there is an option to transfer your car loan, it is not exactly an easy process. Gaurav Gupta, Co-Founder and CEO, Myloancare.in said, "A car loan transfer is a cumbersome process as it not only requires you to identify a creditworthy borrower for loan transfer but also requires you to transfer your car registration and insurance in the name of the newborrower." He said, "You need to carefully assess the costs associated with the loan transfer which may include processing fees charged by the bank for the loan transfer as well as car registration transfer and car insurance transfer charges. You must know that all these charges may together make the process of loan transfer an expensive, unviable proposition for the buyer; the buyer may insist on sharing the charges with the seller."
Keep the following things in mind while transferring the car loan to another person.
1. Check the current loan agreement details
Before thinking of transferring the loan to another person, you must ensure that you have gone through the details of your loan documents. It is mentioned in the loan document whether it is possible to transfer your loan to another person. However, if you are unable to find this information in the loan document, you can contact your lender with whom you took the loan and check if such an option is available with them.
Adhil Shetty, CEO, Bankbazaar.com said, "While transferring a car loan, first, you should talk to your lender and confirm with them about transferring of loan. Ensure you're on the same page with regard to the terms and conditions of the transfer." He said, "Your car loan contract should allow a third-party transfer."
2. Analyse the new car buyer's (borrower) credibility
The new car buyer (borrower), who is going to take over the car loan, should have had maintained a good credit history. Assuming that the original loan agreement allows the transfer of car loan to another person, Gupta said that one needs to identify a buyer who has stable income, healthy credit history and all the supporting documents in the form of income proofs, residence proof etc. The bank will do a credit appraisal of the person buying the car (new borrower) from you and will sanction a loan only when it is satisfied on the repayment capacity and history of the borrower. "You (new borrower) may also have to submit KYC (know-your-customer) documents as per the requirement of the bank," he said.
3. Transfer the car registration certificate
The existing owner has to transfer the registration certificate of the car along with the loan to the buyer. This process has to be initiated by visiting the RTO (Regional Transportation Office). They will help you in transferring the ownership of the vehicle to the buyer. The RTO will levy charges on the transfer process. Once the background check is done by the lenders and other documentation processes are completed, the new owner is issued a 'Registration Certificate' in his/her name.
4. Transfer the motor insurance policy
You need to ensure that your motor insurance policy is also transferred in the name of the car buyer. You should do this to ensure that you don't have to pay insurance premium anymore, once the car registration and the loan are transferred to another person. Submit all the related documents (updated loan documents, registration certificate copy, etc.) to the insurer. After getting the insurer's approval, your policy will also get transferred in the name of the new buyer.
5. What should the buyer of the used car do?
The used car buyer has to apply for a used car loan. The interest rate payable on a loan sanctioned for a used car is higher than the interest rate on the loan sanctioned for a brand-new car. You will also get a maximum tenure of 5 years to repay the loan. However, this depends on the age of the car too. If the car is old, the insurer might reduce the tenure to three to four years.
The used car buyer's loan eligibility is scrutinised as per the lender's norms. Once the loan is granted, the car buyer can start paying the EMIs on his own loan (transferred loan) accordingly. He/she can apply for the used car loan either with the existing lender or at any other lender agreeing to finance the purchase.
However, Shetty said, "For a smooth transfer of the car ownership, you must do due diligence on the buyer's credit history to avoid surprises later."