05
Feb

Loan transfer

There are several reasons why you might want to transfer a loan to another person: maybe you have come across a large sum of money and no longer need to borrow, or you qualified for a loan with better terms. No matter what the reason, at some point you might find yourself stuck with a loan you don’t need.

The issue of whether or not you can transfer a loan to another person can get a little murky due to variance in loan type and individual agreement terms. To better understand ideal conditions to transfer debt, and which types of loans are even applicable for hand-off, let’s review some of the most popular loan types and why an interpersonal transfer is or isn’t possible.

Personal Loan

Personal loans cannot be transferred because their approval is determined by credit standing. Transferring a loan would put a lender at added risk since they would have no guarantee that the new loan owner is responsible. For this reason, most personal loans cannot be transferred.

Mortgage

There are practical reasons for transferring mortgages that aren’t applicable to other types of lending. For example, if you’re selling a house the new owner can take on your mortgage to avoid taking on a new loan with a higher interest rate. Due to this special circumstance mortgages can be transferred.

However, transferring a mortgage to a new person can only happen under certain conditions. For example, the new borrower must requalify for the mortgage. Their credit standing must be equal to or greater than the initial borrower in order to be approved. Next, the mortgage must be “assumable” — meaning the loan agreement states that the outstanding mortgage and related terms will transfer to the new person.

In general, assumable mortgages are rare because they are difficult to qualify for. Alternatively, many people choose to not transfer a loan but start over instead. While this isn’t technically considered a loan transfer, it yields a similar result. The new buyer can apply for a new loan and use it to pay off the existing mortgage debt.

Car Loans

It is also possible to transfer a car loan, and there are two primary ways to do this: using the same lender or using a new lender:

  1. Same lender — When you decide to transfer a car loan the lender needs to be notified, at which point the new borrower’s credit might be assessed. This method will cost you less in penalties, but the new borrower will have their credit score dinged for an inquiry.
  2. New lender — A new lender can pay off your existing debt and issue a new loan. This method will cost you more, and potentially lower your credit score, but the new borrower will likely see this as a better deal. The remaining loan balance will naturally be less than the initial amount, thus garnering a lower monthly payment and interest rate, so this method is ultimately a better deal for the new loan owner.

No matter what type of loan you’re interested in applying for or transferring, your credit score will play an integral role in approval and determining the interest rate. If you’re not happy with the state of your credit report, and fear it might affect financial borrowing, it might be time to reach out to a professional credit repair company.

CreditRepair.com disputes false or misleading credit report items, and members see a 40 point score improvement in the first four months of their subscription, on average. Contact CreditRepair.com for a free personalized credit consultation and audit of all your accounts, and start on the path toward better credit, lower interest rates, and loan approval.

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