People opt for car finance because it enables them to drive a vehicle without the need for a large upfront payment. It helps manage cash flow, and often provides access to newer, more reliable cars that might otherwise be out of reach. Car finance is a straightforward process that allows you to spread the cost over a set period, making it more affordable. Learn the 5 Simple Steps for Smarter Car Finance.
Can you transfer car finance to another person or business?
It is possible to transfer car finance to another person or business under certain circumstances and can replicate an existing agreement. Although, it can depend on various factors and might not be considered a ‘true transfer’, but a replacement agreement.
Whether you're considering a transfer due to changing financial situations, selling the car, reducing your credit utilisation, or shifting ownership to a business, it’s important to understand the process and potential challenges.
In this post, we’ll explore the key factors involved to transfer car finance, including the risks, considerations, and steps to take for a smooth and successful transfer.
Can you Transfer Car Finance? Answered in Under 60 Seconds
Can you transfer car finance to another person?
Transfer of car finance is particularly straightforward if it’s being transferred to a family member living under the same roof. This process tends to be relatively simple, but the usual credit checks will still apply.
What are the requirements to transfer car finance to another person?
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The person taking over the finance must be sufficiently creditworthy to meet the lender’s approval. Details such as the vehicle’s registration number and current mileage will need to be provided. Since this is a new agreement replacing the existing one, it isn’t technically considered a direct transfer of the existing agreement or novation. This is where the original contract is cancelled and replaced.
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The car must be of a reasonable age and condition as it serves as collateral for the loan if the borrower defaults. If the car is too old or in poor condition, its resale value may not be sufficient to cover the loan. This could increase the lender's risk. For example, to secure a 5-year agreement, the car would typically need to be no older than 10 years at the start and not exceed 15 years old by the end of the term.
Risks and considerations when you transfer car finance to someone else
Associated costs
If you decide to transfer car finance to someone else, it's important to be mindful of the potential costs. These can include administrative fees charged by the lender for processing the transfer. If a car dealer is involved in facilitating the transaction they may impose their own fees.
If a car dealer does assist with the transfer, the process typically involves the dealer buying the vehicle. The existing finance will be settled, and then the car will be resold to the new owner. Keep in mind that a fee is usually charged to cover the dealer's liability, and the cash flow needed to clear the existing finance.
If the person taking over the finance has a lower credit rating, the lender might not approve them. In this case, the interest rate could increase, resulting in higher monthly payments. However, depending on when the original agreement was taken out, there might also be an opportunity for reduced interest rates.
Avoid fronting
It’s essential that the person named on the agreement is also the one making the payments and using the vehicle. Fronting, where someone with better credit takes out a loan on behalf of another person, is considered misleading and fraudulent. To avoid this, ensure that the borrower listed is truly the one who will be using and paying for the car.
Guarantors
In car finance, a guarantor is someone who agrees to pay the car loan if the borrower can’t make the payments. Typically, a guarantor is usually a close friend or family member of the borrower. Guarantors are often needed if the borrower has poor credit or struggles to get approved on their own.
It’s important for guarantors to understand that they are equally responsible for repaying the loan if the borrower defaults. Guarantors should carefully consider this as it could negatively impact their credit score.
Lenders may have specific requirements for guarantors as well as be required to evidence that they can take on the loan. If you’ve been asked to guarantee a car finance agreement or you would like to explore what involving a guarantor could mean for you, please contact us for our professional advice.
Can you transfer car finance to another company?
A true transfer of an agreement, sometimes referred to as a novation, involves carrying the original agreement over to a new name. This approach is typically used by businesses transferring an agreement within their corporate group or from an individual to a business entity. However, this process is more complex and requires the guidance of an expert to assess your specific circumstances. Get in touch if you're considering transferring to another company. We can offer detailed information, explore your options, and assist you throughout the process
Can you transfer car finance from one car to another?
It's important to understand that finance agreements tied directly to the vehicle will terminate once the car is sold. This applies to various types of agreements, such as PCP (Personal Contract Purchase), hire purchase, and lease purchase agreements. This means that any new car you purchase will require a new finance agreement to be put in place. If your current agreement is coming to an end and you’re looking for your next vehicle, consider streamlining the process with James Murray Vehicle Sourcing Service.
This can work in your favour if interest rates have dropped since your original agreement, allowing you to potentially secure a better deal. However, if you have a low-rate deal on your current car, that advantage will unfortunately end with the sale of the vehicle. These finance agreements are tied to the car itself and will be reflected on a HPI report, which serves as a financial health check for the vehicle. Even in the event of your car being written off, regulated consumer agreements typically provide a settlement for the existing finance. You'll then need to start a new agreement for any replacement vehicle.
Explore our complete range of car finance agreement types to discover the perfect plan for you.
Car finance transfer FAQs
Who legally owns a car on finance?
When you finance a car, the legal ownership, or title, remains with the finance company or lender until all payments have been made in full. However, as the borrower, you are responsible for all costs and legal requirements associated with the vehicle. This includes maintenance, insurance, taxes, and any necessary repairs. While you have the right to use the car, the lender retains ownership until the finance agreement is fully settled. To better understand the ownership and responsibilities associated with different finance agreements, read our dedicated article Contract Hire vs Hire Purchase vs Lease Purchase.
Can you refinance your car loan?
Yes, you can refinance your car loan. This involves replacing your current finance agreement with a new one. Doing this typically secures a lower interest rate, reduces monthly payments, or extends the loan term.
However, car finance is tied to a specific vehicle. Therefore, the new loan would still be linked to the car, and the usual credit checks and vehicle condition assessments would apply.
Refinancing can be advantageous if rates have decreased since your original loan. However, it's important to consider any potential fees or changes in terms before proceeding. Before refinancing your loan, make sure to explore ways you can save money on your car financing.
What type of car finance do I have?
To determine the type of car finance you have, the best approach is to locate your finance agreement. Look for specific terms such as "PCP," "hire purchase," or "lease purchase." You can then cross-reference these terms with the descriptions on our car finance page which explains the different finance products..
If you can't find your agreement, check the bank name on your direct debit payments or consider running a HPI check to identify the lender. You can then contact the lender directly to request a copy of your agreement.
If you’re considering a new car finance agreement, you should weigh up the pros and cons of various car finance funding options. Look at our detailed blog post comparing Contract Hire, Hire Purchase and Lease Purchase to help you decide. If you’d like our professional advice, please contact us.
Car finance can be worth it for many people, as it allows you to drive a vehicle you might not be able to afford outright. It can provide access to newer models, advanced features and better fuel efficiency. It offers lower upfront costs and spreads payments over time. For businesses, there may also be tax advantages to financing a vehicle.
However, financing a car typically costs more in the long run due to interest charges. It also means committing to ongoing monthly payments, which can strain your budget. Before deciding, carefully consider your financial situation, needs, and long-term goals. Compare the total cost of financing with buying outright and ensure you're comfortable with the terms and payments before committing.
You can save money on your car finance by consulting a reputable finance broker rather than going through a dealership. Check out our blog to discover the benefits of working with a finance broker.
Can I end my car finance agreement early?
Yes, you can end a regulated consumer car finance agreement early in the UK. The most common option is settling early by paying off the remaining balance, which may include an early settlement fee. This allows you to own the vehicle outright or sell it.
Another option is voluntary termination (VT). This is available for Personal Contract Purchase (PCP) or Hire Purchase (HP) agreements once you've paid 50% of the total amount payable. However, it's crucial to speak with a financial specialist before pursuing VT. There can be downsides such as potential impact on your credit report or restrictions on future finance agreements.
Always review your specific agreement terms and consult your finance provider to understand your options and any financial implications before deciding.
Making informed decisions about car finance transfers
If you transfer car finance to another person or business it can offer flexibility for various situations. The process involves careful consideration of creditworthiness, potential costs, and lender requirements. It’s crucial to ensure that any transfer or new agreement adheres to all legal and financial guidelines to avoid complications.
Understanding the details of your finance agreement and seeking professional advice can help ensure a smooth transition. For further guidance or to explore the best options for your specific needs, don’t hesitate to reach out to us for expert assistance.
Keep in touch with James Murray Finance for free business and car finance insights and updates. Subscribe to the blog via LinkedIn HERE or follow on social media.
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Disclaimer: This blog post is intended for informational purposes only and does not constitute financial advice. All information is collated at time of writing and the best efforts have been made to ensure accuracy.
About the author
Meet James, the founder of James Murray Finance. With nearly two decades of industry experience and eight years dedicated to the finance sector, James has worked with a wide range of businesses, from startups to established enterprises. Read More >