Get Rid of Those Car Payments

Should you Let Somebody Take Over your Car Payments?

Car going on the market
Dimitri Otis/Taxi/Getty Images

Whether it’s time for an upgrade or your plans have changed, you might find that your loan (or lease) is holding you back. Assuming you can't just pay off the loan, what's the next best option – can you just have somebody take over your car payments and be done with it?

The short answer: even if you can find somebody to take your place, it’s much better to sell the car or get out of the lease entirely.

The Temptation

With any kind of loan, whether you own a house or you’re making payments on a truck, it seems like a great idea: find somebody who’s willing and able to make the required payments, and walk away from the deal. The buyer benefits from low up-front costs and a predictable payment. The lender gets to keep collecting payments as if nothing happened. Most importantly, you get freedom to move on – everybody wins.

Unfortunately, it’s more complicated than that.

The Risk

You are still responsible for payments until you completely unwind any agreements you made. If you applied for a loan, your credit is on the line, and you’re responsible for getting the loan paid off. That risk does not transfer to somebody who simply takes your car and starts making payments.

If the payments stop arriving (for whatever reason – your borrower can die, change his mind, lose his job, or wreck the car), the lender or lease company will take action against you (lenders don’t legally have the right to go after your “buyer” because they don’t have a signed agreement).

That might include sending your account to collections, filing lawsuits, garnishing your wages, and more.

Ultimately, your buyer does not have any skin in the game – you do.

The Best Solution

To eliminate your risk, eliminate your responsibility to repay. Sell your car (even if you still owe money on it) and pay off the loan.

With one less monthly payment, it might be easier to qualify for a new loan.

You can certainly ask your bank about transferring the loan to somebody else. It’s unlikely that this is an option, but you’ll never know for sure until you ask.

If you’ve leased the vehicle, you might try to sell it and pay off the lease. Your vehicle has value, and you can use that equity to generate cash (you might not get enough to pay it off completely, but you’ll at least make a dent in things).

It might also be possible to transfer the lease in a transaction where the responsibility to repay is officially shifted to somebody else. Several websites offer this service – but do your research to ensure that you work with a reputable one (and make sure that your responsibility is 100% eliminated).

Alternative Approaches (Pros and Cons)

If you can’t legally free yourself of the responsibility to repay, you’ve got a few more (although less attractive) options.

Refinance: depending on your needs, refinancing the loan might offer relief. Especially if your credit has improved since you bought the vehicle, a new loan might come with a lower rate and lower payments (see how that works with a loan calculator).

If you refinance, it might be tempting to go for the lowest payment possible.

To do that, you’d choose the longest loan term (five years or more, for example), adding those years on top of the time you’ve already spent paying down the loan. But watch out: while a low payment is appealing, stretching out the loan will cost you more over the long term. You’ll start with a new loan, which means you go back to the early years of a loan when your interest costs are at their highest.

Trade in: if you want a different vehicle, you can trade in your existing vehicle, and add any unpaid loan balance to your new loan’s balance. But that’s rarely a good idea – just like stretching out a loan (which costs more in interest), you’re just getting an oversized loan for your new car.

Repossession: if none of the options above work (and you need to get out of the loan), it may be best to hand the keys over to your lender.

If you voluntarily surrender the vehicle, you won’t pay the full costs of repossession – but you’ll still be liable for any unpaid balance, and your credit will suffer. But at least you’ll free up cash flow and you can begin the process of moving on. Speak with a credit counselor before you stop making payments or surrender your vehicle.