How to Take Over Car Payments on a Used Car

There are a number of reasons why you may want to take over a car payment. Perhaps a family member or friend no longer needs a car and you do, so you’re considering purchasing it from them, but they still owe payments. 

You could also be considering purchasing a used car from someone you don’t know. You may wonder if taking over another person’s loan is feasible or even a good idea. Read on to understand the risk as well as understand the process. 

Should you take over car payments? 

The short answer to this is that it most likely will not be possible to do legally. If it is, the process can be complicated. 

First, if you are working with someone online, it can be a minefield for scams. If the seller is wanting payment before you’ve even seen the car, this is a red flag. If you really want to move forward with this, make sure you arrange to meet in public, ideally in the parking lot of a police station. Some police stations even have designated areas for transactions. 

Second, if you choose to go under the table and pay the loan to the original owner, they still own the car. They are the agreed upon borrower with the lender and hold the title. Even if you have a good relationship with a friend or family member and make a verbal agreement, there is no guarantee that your relationship doesn’t spoil somewhere down the road, leading to an additional messy situation with the car. 

8 steps to take over car payments 

Let’s say you still want to move forward with taking over someone’s car payments. Below is the process in order to proceed. 

1. Choose between loan assumption and refinancing 

Loan assumption is the process of taking over the responsibility of the original loan with no change in terms and taking ownership of the vehicle. 

Refinancing is replacing a current loan with a new one. It is most likely the direction the lender will take. Loan assumption is less likely to take place and get approved for. However, there are ways to go about it. 

2. Evaluate the current terms 

The first thing you need to do is review the original owner’s loan, terms and conditions. Just like any car you purchase, you want to assess the vehicle’s condition, maintenance history, history report, service records, etc. 

The main goal in reviewing this information is to assess if you can make a similar payment, and to assess if the car is “upside down” or not. When a car is “upside down” this means the car value is less than the loan amount. If this is the case, taking over payments is a bad idea.

3. Contact the current lender    

The original owner of the vehicle will have to contact their lender and ask if they are willing to allow another person to take over the payments. Most car lenders will not move forward with this process, and if they do, it will not be at the same rates. This is because the original loan was made between the lender and the original buyer with consideration of their income, credit score, and specific terms and rates on the loan. 

However, some lenders may make an exception under special circumstances. In this case, they will ask for you to essentially apply for a new loan.

4. Meet loan requirements 

Be prepared by getting documents ready such as pay stubs or bank statements for proof of income and driver’s license. The lender will also run your credit score. If you have a credit score of at least 600 or more, your likelihood is higher to get approved. Approval can happen as quickly as a few days but can take as long as a few weeks. 

5. Transfer the title and registration

You will then need to transfer the title of the car into your name. You can do this in person at the Department of Motor Vehicles (DMV) with the original owner. Be sure to bring proof of identity, car title,  and the bill of sale which should have information like the odometer reading, make and model of the vehicle, Vehicle Information Number (VIN), and model year. The DMV will have to make a duplicate of the title which can take several days or even several weeks. Additionally, you will also want to show proof of active insurance. 

6. Consider private sale or lease transfer 

A private sale will allow you to own the car outright. You have no limits as far as mileage, and you have peace of mind knowing this is your car. However, you will have depreciation of the car over the years, although buying a used car can be advantageous from avoiding the largest drop in depreciation if the vehicle is at least three years old. 

If you are taking over a leased car and you need a car only in the short term, a leased vehicle will be advantageous as their contracts are usually two to three years. It allows you the freedom of having your own vehicle without having the commitment. 

When taking over lease payments, there is no reapplication and the payments are as-is. This could be a positive if the original lessee has great credit, or a negative if they have a lower credit score. Finally, when leasing a vehicle you are restricted as far as how many miles you can drive in a period of time, and any wear and tear is still your financial responsibility. 

If you really love a vehicle, drive far and often, and want the peace of mind knowing a vehicle is yours, purchasing a car is the way to go. However, if you need a low commitment and do not drive as often, taking over lease payments is a smart choice. 

7. Come to an agreement 

Once you have come to an agreement with the original owner, be sure to put any agreement in writing. A purchase agreement is a binding contract between a dealership and the buyer. However, when purchasing a used car, the bill of sale acts as a simple form of a purchase agreement. However, you may want to consult a lawyer to draw up a basic contract that stipulates the responsibilities of each party.

8. Complete the transaction

Having created a contract allows the next action steps to be clear. Once both parties sign the contract and the bill of sale, you now have clear steps moving forward. You will know when the first payment on your end will take place and for how long. You will also want to inform your auto insurance of the purchase and make sure the insurance takes place on the day that you assume responsibility. 

Tips for taking over car payments on a used car 

• Document the transaction - Make sure you go through this process legally and follow the steps above. Ensure you have a bill of sale, transfer the title, and create a contract that has been looked over by a lawyer. 
• Be aware of potential scams - It’s important to be aware that when buying a used car from someone you don’t know, there are a wide range of ways to fall into a scam. Be sure you see the car before you make any agreements or share any personal information. If the seller asks for money up front, do not continue communication.
• Can you afford the payments - Ensure the car you want fits within your budget. If you are planning to do a loan assumption, be sure that the payments the lender offers to you based on your own credit score are affordable for you. 
• Is the car worth it - Be sure that the car is not worth less than what is owed on the car. You can figure this out by evaluating the payments and how much is still owed and comparing that number to the research you do to figure out the worth of the car if you were to trade it in. 
• If you know the owner, proceed with caution - While knowing the seller usually prevents you from any scam, you may want to reconsider moving forward with the arrangement. Your relationship may currently be strong, but if something should happen down the road, you want to make sure financial situations do not also become entangled in the overall situation.

Alternatives to taking over car payments

• Trading in - If the seller is unable to continue with payments, the seller can always opt to trade their car in to a dealer in order to get money for a down payment on a more affordable car. They can also trade the vehicle in if they no longer have a need for it. 
• Refinance - The seller can also refinance which means that you are replacing your auto loan with a new loan. Make sure that if you choose to refinance, the payments would actually go down or lower the overall interest of the loan.
• Co-signing on a car - If the seller knows the buyer, an alternative to taking over the payments is to have the buyer co-sign on the car. This could be an incentive for the buyer if the seller needs help with the payments but can also be utilizing the car. 
• Car subscriptions - A car subscription with FINN is a great alternative. You can be clear on what you can afford because monthly rates include insurance, maintenance and roadside assistance. And you aren’t tied down to the vehicle for long term. If a life situation occurs, you can switch. For example, if you move into a city and need a car for city driving, choose a new one once your term ends.

Final thoughts

When purchasing a used car that still has payments to be made, be sure you approach the process carefully and legally in order to protect yourself. Be prepared that transferring the payments may not be possible. However, if it is possible, be sure you follow the process and tips provided. Alternatively, you can make a sound decision with flexibility should you look into the option of a car subscription to provide you with all your financial and driving needs.