Taking over payments of a car loan is one of the most vital elements of a used car transaction. According to industry experts, assuming the payments of a car loan is not always the best option when looking to purchase a used vehicle. This is primarily due to the car loan being worth more than the ACV or Actual Cash Value of the car over time. As a car ages its value depreciates, unlike a loan where the amount owed appreciates or increases as time passes.
I'm not too sure I understand...
Alright, with loans in general you have interest payments and principal payments. For most loans, car loans being no different, monthly payments made during the early stages are allocated towards the interest portion. During the later stages, payments made are going towards the principal, or the initial amount borrowed. As time passes the loan is increasing in value due to the interest portion, while the car is loosing value because it is no longer considered "new". In some scenarios concerning antique or collector vehicles, the car can be appraised and given a replacement cost which will prevent depreciation on the market. Regardless, there are three primary scenarios when a buyer is taking over payments of a car loan:
1. The purchase of a used vehicle privately, without notifying the lender. The unique thing about this type of transaction is that the purchase price includes the down payment and balance remaining on the existing loan. The buyer gains possession after making the down payment, and continues to pay the monthly amount towards the loan, even though the lender is not notified. The ownership documents of the vehicle remain in the name of the buyer, who continues to assume the responsibility of the loan and its standing. If the buyer were to stop paying towards the loan, the onus would be on the buyer. I know what your thinking, "why would anyone agree to this type of arrangement?" It is typical for family members to engage this type of arrangement to avoid paperwork and hassle from the lender.
2. The purchase of a used vehicle upon approval from the lender. Once approved, the seller is no longer liable for the status of the loan and the buyer assumes all responsibility in repaying the amount owed. The loan and vehicle documents are transfered to the buyer. The bulk of lenders in my experience are not keen on transferring loans to a different name. Doing this requires them to perform another background check, paperwork, and the removal and addition of customer information.
3. On the flip side, a lender would be more inclined to approve the addition of another name on an existing loan. In this scenario, the buyer and the seller both assume responsibility to repay amounts owed. Everybody wins, unless one party decides to stop making payments. Time to call Judge Judy!
If you are interested in buying a used car, I would recommend making an attempt to secure your own financing to make the purchase. There are plenty of companies on the internet who provide easy approval by filling out a short form which usually consists of name, DOB, age, employment status, email, etc. My sister was looking to buy a used Honda a few years back, so she gave me a call. After asking her some questions, I referred her to a few websites and within a week she called me to say she got a loan with a great interest rate and repayment plan! Believe it or not there are still tons of great financial companies out there, you just have to know where to look! I hope this article has provide some insight towards the decision of taking over payments of a car loan.
E.B. Vieau has worked for some of the largest financial institutions in North America as a Financial Analyst, and Registered Insurance Broker within the Automobile and Residential sectors.
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