Car Loan Transfer: Here is what you should learn about it

Everyone loves a little upgrade from time to time. Be it your home or your car, there is nothing wrong with wanting better and newer things. Also, in India, most consumers tend to replace their cars within 5 years because of poor performance, expensive maintenance, and high running costs. But is replacing your old car as easy as it sounds? Especially when the car is still on loan.
 
If you bought your car on loan and are still paying EMIs, selling your car to buy a new one can seem like a tedious task. The reason for this is that you must not just transfer ownership of the vehicle but also the loan into the buyer's name.
 

What is a car loan transfer?

A car loan transfer occurs when you sell your financed vehicle, and the other party is willing to pay the remaining balance. Assume you purchased a car with a loan of Rs 6,00,000 at 9% interest and the repayment period you chose is of 6 years. But you have decided to sell your four-wheeler and transfer the loan to Mr. XYZ after three years of ownership.
 
In this case, the total dues with interest paid to date are Rs 3,89,240, and the new buyer will have to pay a similar amount because you are selling your car halfway through the loan.
 

What is the difference between a car loan transfer and a car loan balance transfer?

Car loan transfer refers to transferring your loan to the new buyer of your financed vehicle. On the other hand, a balance transfer is a process of transferring your outstanding debt balance to a new lender to obtain the best used car loan interest rate.
 
However, both types of transfers have associated fees. Furthermore, when you apply for a balance transfer, the new lender will review your previous debt payment history to see if you made EMI payments on time. If the lender discovers anything negative, they may reject your balance transfer application.
 

How to transfer a car loan to another person?

 

1. Check the loan agreement

   You must be aware of the terms of your used car loan. Not every lender allows car loan transfers. If your lender allows it, investigate the fees and procedures involved. If you cannot find any information about the car loan transfer process, it is best to call your lender's executive or visit them in person to understand the provision.
    

2. Search the borrower

   Finding someone ready to purchase a financed car is difficult due to easy access to used car loans. You need to make a compelling offer to convince the buyer to buy your car. If none of your contacts accepts your deal, you should consider enlisting the help of a used car dealer. If there is not much left on loan and the car you wish to sell is in good condition, the dealer may be willing to buy it.
    

3. Check the buyer's credibility

   Creditworthiness is vital not just at the time of applying for a loan but also when transferring a car loan to another person. If the person purchasing your car has a poor credit score and no clear source of income, the lender will not approve of the loan transfer.
   You should look over the buyer's credit report, bank account statement, and pay stubs at this stage. You should also request their credit card bills, as exceeding 30% of the total revolving credit limit reduces creditworthiness.
    

4. Transfer of Registration Certificate 

   If you believe the buyer is credible and the lender approves the transaction, the next step is to transfer the registration certificate (RC). RC is a mandatory document that proves your car is registered with the government. The RC includes information such as the chassis and engine number, cubic capacity, fuel used, and other critical data.
   You can initiate the RC transfer process at the Regional Transport Office (RTO) or through their official website. The following documents are necessary during the RC transfer process:
    
   • Form 29
   • Copy of Pollution Under Control (PUC) certificate
   • Original RC
   • Ownership transfer notice
   • Clearance certificate
   • KYC documents 
    
   The cost of RC transfer varies by state and can range between Rs 300 and Rs 500 if done online.
    

5. Insurance transfer

   Car insurance belongs to the vehicle, not the owner. It is best to transfer your insurance to the new buyer if you have recently renewed it, as it may help you get a better deal. Transferring insurance helps new buyers reduce their financial liability if the car is damaged shortly after purchase or while in transit. Furthermore, it assists them in retaining the No Claim Bonus (NCB) if you did not file any claims during the previous policy year. NCB results in a premium discount during renewal.
    
   You can complete the insurance transfer process in person by going to the insurance company's branch. The following are the key documents you will require:
    
   • Copy of RC
   • Form 29
   • No Objection Certificate (NOC) from your side
   • Inspection report (prepared by your insurer's executive)
   • NCB difference amount
    

 

What should you look for if you decide to buy a financed car rather than sell it?

When purchasing a financed vehicle and accepting a loan transfer, you only need to keep an eye out for basic factors. These are:

• Check the original borrower's repayment behaviour. Ensure there are no EMI skips, as this will result in a hefty penalty. And the burden of bearing them will fall on your shoulders.

 

• If the original buyer has recently financed the car that you are buying, the EMI will include more interest instead of the principal amount. It is best to avoid getting involved in such a type of deal.

 

• Avoid accepting a loan transfer if the vehicle has many dents, a damaged engine, and an improperly maintained cabin. Paying interest on a car that increases your repair costs or has no resale value makes no sense.

 
Also Read: All Your Car Loan Questions Answered
 

To conclude

Transferring a car loan becomes much easier if you find a buyer with a good credit profile and decent earnings. The lender will not object to the transaction if it believes the new buyer will pay off the outstanding debts without causing any defaults. However, before searching for a new buyer, you must make sure that your bank is willing to offer a loan transfer.  After receiving approval from your lender, make sure you transfer the registration certificate to the new owner, as well as any active insurance. Maintain a good relationship with your financial institution as well as your buyer, just in case there is any discrepancy in the sale.