Greetings from the Hemet Car Guy,
A repeat customer/friend of mine bought a pre-owned Toyota Prius, with the plan to drive for Uber and have his roommate take over payments on his other car.
I’m hearing that more and more car owners are letting someone else take over car payments on their behalf while the loan is still in their name. People have asked me whether this is a good idea.
There are consequences to letting someone take over car payments on your vehicle loan. The first one is obvious – the person you ask to make the payments has no right or title interest in the car, so what’s to keep them from not making the payments as agreed? You may hand over your car payment coupon booklet only to find out in a few months that your car is being repossessed for failure to make payments. In addition, the finance company will not want to hear your story about how your friend or family member was supposed to make the payments, especially if they’re not even on the loan as a cosigner.
The idea of allowing someone else that has not cosigned the loan and is not responsible for the car payments is really not a good idea. Instead of that, call the finance company as soon as you know you won’t be able to make your monthly payment. Ignoring late notices will not make it easier when you do finally have to speak to a finance company representative.
Check the true market value
I suggest getting the true market value of your vehicle at the time you make the call, as true market value can vary from month to month. It also depends on mileage.
If the true market value is more than what you owe on the loan, sell your car outright and pay off the loan. While you won’t have the car, you won’t have the monthly payment either and perhaps can find a more affordable vehicle.
If you are upside down on what you owe on your car, meaning you owe more than the car is worth (true market value), you can still try to sell it and ask for friends or family members to loan you the difference to pay off the entire loan.
Inquire about interest rates and refinancing
Ask the lender if it is possible to refinance the car at a lower interest rate. If you’ve been timely on your payments, the finance company may allow it, which will reduce your payment. Although most car lenders won’t reduce an interest rate on an existing loan, you can ask to refinance for a longer term that will lower the payments. Doing this, however, may result in a higher interest rate, but your monthly payment will be lower, which is your overall goal.
Ask a credit union about loan assumption
Most auto financing companies won’t allow this, but a credit union or bank might. The person who wants to assume your loan will have to qualify and take title from you, which means that the person assuming the loan could take the car from you if they are making the payments. Once the loan is in another person’s name, you’re out of the loan as well as owning the car, so keep this option as a last resort.
Many of us think letting someone take over car payments on an existing car loan on our behalf is a good idea, but it isn’t. There is no recourse if they decide to stop making the payments, and these days, a finance company will attempt to repossess the vehicle within 120 days, which will be reported to all three credit bureaus.
One last suggestion: visit the dealership where you purchased the car and see if they will sell it on consignment to help you pay off what you owe.
The Hemet Car Guy