There are lots of circumstances that mean transferring your monthly finance payment over to a different vehicle would be helpful. While it’s not possible to simply remove your current car from your agreement and add a different one, there may be ways to end your current loan and begin a new one.
Why can’t I just transfer a car loan to another car?
The idea of swapping your car finance agreement to another car might sound simple in principle – but in actual fact, it just isn’t possible.
Well, a car finance plan factors in a huge number of different things. Including:
- Your circumstances when you took the loan out
- The value of the car
- The value of the car at different points through the repayment period
- Special finance offers and packages available through your dealer
With this information, a loan is ‘underwritten’ by the finance company. The underwriting process involves considering all this information, then deciding whether or not the company should offer the loan – and if it does, the rate at which finance should be offered.
As such, any change to this information could significantly change the underwriting decision. So, a change of vehicle would mean the company would have to go back to stage one of the application process, considering all this information again.
If a company decided to simply swap the finance agreement to a new car, it could significantly increase the risk involved with the loan – and since the implications of this are enormous for a financial institution, it’s something they just will not consider.
Swapping to a different car
Since we now know it’s not possible to just transfer a car loan to another car, how do people upgrade their vehicles without waiting until the end of their repayment period?
In truth, a lot can happen in the time it takes to pay off a car finance agreement. Your family circumstances might change; your business needs could alter; the number of miles you need to do could be dramatically different.
With this in mind, dealers and finance companies do make it possible to change vehicles – but whether or not it’s feasible for you will depend on your circumstances.
Some finance options if you’d like to change cars
If you’re certain you’d like to change cars, you’ve got some options to explore. Generally, you can take your current car to a dealership and let them do the legwork for you – or you can look into settling your current finance yourself, before taking out another agreement.
Let’s look at each option in a bit more detail:
Option 1: Go to a dealership
Dealerships and finance companies are usually closely linked. Salespeople and sales managers will understand the ins and outs of every possible finance situation – and they’ll be able to find a solution to your problem – especially if it means they will sell another car!
For you, this makes the process simple – but it will limit you to buying a car that the dealership can provide and using the finance firm that dealer works with. Of course, you don’t have to return to the dealership you bought your car from – you’ll be able to part-exchange your vehicle with any dealer.
When you look at part-exchanging, the person you’re dealing with will want to know if there’s any finance outstanding on the vehicle. Usually, they’ll get a settlement figure on your behalf, before putting together a deal that pays off that finance agreement and sets up a new one.
They will compare the value of your current vehicle to the amount you owe. If you owe less than the value, the equity in the car can be used as a deposit for the next car. If you owe more or the same amount as the vehicle is currently worth, then you might find you need to put a deposit in to make an upgrade viable.
Ultimately, the dealer will put together a package that’s as simple as possible. They will deal with paying off the old finance, setting up the new plan, and working out if any deposit is needed.
Option 2: Handle the process yourself
Of course, it’s perfectly possible to do the same job as a dealer will do for you. If you do, it’ll be a little more work – but it does free up options around the next car you choose and the finance company you’d like to take your next agreement with.
To begin with, you’ll need a settlement figure from your finance company. Generally, a settlement figure will only be valid for a certain amount of time – so you should note these time limits down. If you don’t have the process wrapped up before the settlement figure expires – you’ll simply need to call back and request another.
When you have your settlement figure, you’ll need to look at selling your car. It’s worth exploring current market values. If you sell privately, you’ll get a little more – but if you sell to a dealership, trader, or car buying service you’ll probably get a lower price – but they’ll often buy your vehicle very quickly.
Your finance company will explain what you need to do if you want to sell your car. Since you cannot sell a vehicle with finance still outstanding, you’ll be required to either pay it off before you sell – or arrange the selling process so that you immediately pay the finance off when the money is transferred to you. Again, your finance company will give you details on how to do this, so everyone is protected.
If your settlement figure and the sale price of the car are the same – then this is a neat and simple transaction. If your sale price is more, you’ll walk away with some money in your account – but if it’s less, you’ll need to make up the difference.
When your previous finance agreement is wrapped up, and the car is sold, you’ll be able to start again – arranging a new finance plan a car that’s better suited to your needs.
Can you transfer a car loan to another lender?
Now we’ve covered a couple of ways that you can change vehicles if you’ve got a current finance agreement, it’s worth looking into whether or not you can swap other elements of your finance plan – beginning with the lender.
We’re often asked if you can transfer a car loan to another bank – and there are a host of reasons you might want to use a different finance provider. Perhaps you’ve seen a better rate? Perhaps you’re consolidating some debt? Whatever your specific reason, it can be possible to swap loans from one provider to another – you’ll just need to talk to them to see what’s possible.
Again, having a settlement figure to hand is helpful – so call your current lender and get that first. When you’ve got the number – you can call the loan provider you’d like to move to and discuss having them settle that finance – before setting you up with a repayment plan with them.