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Photo: iStock
Photo: iStock

5 things you must know while transferring a car loan to another person

  • You should first check if your loan agreement allows you to opt for a car loan transfer to another person
  • Check with your insurance company about the car insurance transfer policy

It is generally preferable to purchase a car without an outstanding loan. This is because the car is hypothecated to the bank. So, the seller first needs to close the loan, get a No Objection Certificate (NOC), get the hypothecation removed from the Registration Certificate (RC) book, and get a new RC book without the hypothecation issued from the RTO before the sale can go through.

However, when you sell a car for which you are still servicing a loan, you have the option to transfer the auto loan to the person whom you are transferring the ownership of your vehicle. Before you make a decision, keep these pointers in mind:

1. Loan agreement

You should first check if your loan agreement allows you to opt for a car loan transfer to another person. If it doesn't mention anything about this specific point, it would be wise to check with your lender if you can go ahead with the process. Adhil Shetty, CEO, BankBazaar.com said, “Your lender’s approval is paramount in the loan transfer process. Also, you will be required to pay the processing fees charges for the loan transfer."

2. Consensus on loan transfer decision

Car loan transfer solely cannot be your decision. Both the seller and the buyer will need to have a consensus about the loan transfer decision and the related transfer terms and conditions. So, check with the new buyer about the car loan transfer terms and conditions.

3. Credit history of the buyer

Shetty said, “You need to remember that the lender will check the credit history of the new borrower (car buyer) to understand the loan repayment capacity. The new buyer will be assessed like a new loan borrower from the lender." He said, “At this juncture, it would not be a bad idea to check the repayment capacity of the new buyer and also the credit history before to take the process forward."

4. Car loan transfer process

To complete the car loan transfer process, you would be required to change your car registration, which would mean transferring the car in the name of the new owner. For this, you will have to visit the RTO (Regional Transportation Office) where the car is registered. “You will need to submit your original registration certificate (RC) and a NOC from the lender along with other documents. After verifying with your lender about the loan transfer, the RTO will change the car registration details. You will have to shell out money for the transfer process. The car registration will be transferred to the new buyer once the documentation and background check is done by the lender. This may be a complicated process and so would require a lot of to and fro," said Shetty.

5. Car insurance transfer policy

One of the most important aspects that you need to take care of while car loan transfer is insurance. Check with your insurance company about the car insurance transfer policy. It would be wise to get clarity on the insurance transfer while discussing car loan transfer details. Your insurance company may ask you to provide important documents such as loan transfer papers, registration certificates etc. This is crucial as it will save you from getting any premium notices after selling your car.

Important things to consider

Factors such as the car type, the age of the car, etc. matter while opting for a used car loan. For instance, the average lifespan of a car is usually considered to be 15 years. Most banks may not provide loan for a car older than 8-10 years. Generally, because the tenor of the loan will not exceed the same period. So, if you are buying a 5-year-old car, your loan tenor will not be more than 3-5 years. “Also, most banks will not finance more than 3 resales," Shetty added.

Shetty said, “It may be easier if the buyer applies for a balance transfer, where the loan can be transferred to another lender. Once the balance transfer is approved the buyer requests the loan be released to clear the liabilities of the seller so that the NOC is issued based on which the transfer of ownership and lien could happen."

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