A reader asked:
I got a car loan last September because I had better credit than my partner. She has been paying it off since the start by transferring the money to my bank account.
Now the question is, would it be possible to transfer the loan to my partner so it’s completely in her name? And if so would it move off my credit report?
You can’t “transfer” a loan
The simple answer is No. There is no way for you to transfer this loan to your partner. This applies to any loan, not just to car finance.
A loan is a legal agreement between you and the lender. It was at a good interest rate because of your good credit score. The lender wouldn’t have given your partner the loan at that rate last year.
You can’t tell the lender “From here on I’m not liable to repay you, my partner will instead.” The fact that your partner has made all the repayments is, I am afraid, not going to impress the lender.
You are going to have to carry on paying this loan, unless you can settle it. A transfer isn’t possible.
Settling the loan
You can ask the lender for a quote for an early settlement. Here the interest on the loan is reduced because you are paying it now. But a lender is allowed to add some extra interest – four weeks is common – so you may not think it is cheap.
You can do this just to find out what it would be – you don’t have to go ahead with the settlement, you can carry on with the loan.
The settlement amount will be valid for 28 days. That will give time for your partner to see if they can get a loan for that amount. The new loan can come from anyone, it doesn’t have to come from the same lender your loan is from.
If they can get a loan, you use the money from this to settle your outstanding loan.
Your loan will then show as settled on your credit record which should make it easier for you to get more credit, if that’s why you want to do this.
Is your partner’s credit record good enough?
This is only going to work if your partner’s credit has improved in the last eight months so they could now get a loan at a reasonable rate.
For many people that may not be realistic. But sometimes a credit record can improve a lot in a short time, for example if a bankruptcy or IVA marker drops off their credit record.
One possibility if this won’t work now is to look again after another year. At that point, the settlement amount will have reduced so the new loan would be smaller and perhaps your partner’s credit score will have improved more.
An alternative if the car isn’t needed
So far what I have written applies to any loan, not just to car finance.
But there is one extra possibility if the car finance agreement is Hire Purchase (HP). This includes Personal Contract Purchase (PCP), which is a common type of HP where you have to make a big payment at the end to own the car.
Here if your partner doesn’t want this car any more, you can decide to hand back the car and pay less than the normal settlement amount. This is called voluntary termination, see How to VT a car for details about how to do this.