Let’s say you took out a loan and then you come across a sum of money that allows you to cover the debt for which you had taken out that loan for, and now you don’t need that loan anymore. Or perhaps you’ve found someone who has offered you a loan with better terms. What are your options? Can you transfer that original loan you had taken out to another person?
Well, this depends on what type of loan you originally borrowed. Let’s start with personal loans.
1. Personal Loans
In this situation, personal loans unfortunately cannot be transferred to another person. This is because the loan is determined by your credit health—you were only able to take out the loan because the bank or financial institution had assessed your credit history and deemed that you were a suitable borrower. If you were to transfer your loan to, for example, a friend whose credit score that might not be as high as yours, this would put the lender at risk.
This means that your only option would be to pay the loan back in full if you want to keep your credit score high.
Mortgages however do allow for the option of transferring loans from one person to another. For example, when you are in the process of selling a house, transferring your mortgage may make the most sense. This way, the new owner won’t have to apply for a new loan and potentially be locked into a new mortgage that has higher interest charges. In order to transfer your mortgage, though, it must be “assumable,” which means that within your agreement, it states that the outstanding mortgage and its associated terms may be transferred to another person.
The buyer must be qualified for the mortgage, which will require the lender to look into the buyer’s credit health to see if they will have the ability to repay the mortgage. Any relevant applications also need to be completed and pay related fees, but in comparison to the buyer’s credit health, these are smaller concerns. The most important thing is that the buyer is qualified for the mortgage.
With this all said, assumable mortgages are actually quite rare and it’s harder to qualify for them. If this is not an option, refinancing is another alternative, which means that the buyer must apply for a new loan on their own and use said loan to pay off the existing mortgage debt.
3. Car Loans
Finally, it is possible to transfer a car loan from one person to another, and there are two different ways to do this. The first way is to modify your existing lender, which means that you will notify your lender that a new person will be repaying the rest of the loan, though the person purchasing your car will need to have his or her financial health assessed. The second way to transfer a car loan is to seek a new lender. The new lender will pay off the remainder of your debt, with a new loan issued to the new borrower.
The former will cost you the least penalties, but it won’t be as good of a deal for the person buying your car as the lender will need to make an inquiry on the buyer’s credit report. The latter will cost you more, potentially lowering your credit score and resulting in some financial penalties, but the person buying your car may see it as a better deal in the end due to the fact that the sum remaining will most likely be smaller than the initial principal and come with lower monthly payments, and lower interest.
While some loans are transferrable, the most important thing for you to look out for is to ensure that you do not take out a loan that is out of your financial means. When taking out a loan, you should realistically consider whether or not you’ll be able to repay it in full. This way, you can avoid potentially being stuck with a non-transferrable loan that may put you into debt and ultimately damage your credit health.
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Learn more about how urLoan can help you with your financial needs and call us at 1-855-723-5626.