Assuming a Car Loan or Lease

by Jim Thompson | Last Updated: June 22, 2021

The assumption of a car loan or lease is a way for people to get out from under payments by having someone take over the financial obligation of the car. The person assuming may do so for two reasons: perhaps helping a friend out of a financial jam or to be able to get a car for themselves without the hassles and high upfront costs of buying or leasing directly. The steps to assuming a loan or lease are not necessarily complicated, and the procedure for doing either is similar.

How it’s Done

Whether you are assuming a loan or having someone else assume yours, the steps are the same. Step one is to examine the loan or lease agreement carefully to determine if an assumption is even a possibility. As documents of this sort are often filled with legalese, it may do you well to speak to the lender directly. Once it has been determined that the transaction is possible, The lender will then check the credit of the person assuming the loan. If approved, a new loan agreement will be structured. At this point, the new “owner” of the car will need to provide proof that full coverage insurance on the car is being provided. Then, of course, the person assuming the loan will take over payments on the vehicle.

Sounds Simple, Right?

Loan assumption is easy if you have a lender or Leasing Company willing to work with you. It is when handshake deals are made between friends or family (or even strangers) that problems can arise. With a little looking, a person can find individuals attempting to have their loan assumed. Some people assume loans thinking the arrangement will be mutually beneficial, but unless the deal is structured through the lender, the title remains in the name of the first person. This means that even after the car is paid off it is technically owned by this first person. The net effect of such a transaction could ultimately have you paying for a car and never owning it. If the arrangement is set up where the second person simply gives the original lien holder cash to make the payments, there is always the chance that those payments will not be made. If this turns out to be the case, the car will eventually be repossessed. While the repossession will severely damage the credit of the first party, you will still be out the cash and have no car to show for it.

Is This the Best Option for You?

If structured correctly, assuming a car loan will allow a person to get into a car with far less upfront money. Again it should be stressed that the deal should be done through the lender and not simply through a friendly agreement. Otherwise, the person assuming the loan also assumes the possibility of severely damaging a relationship, entering into an agreement with a dishonest person, or finding themselves out of much money with nothing to show for it.