Transferring a Car Loan to Another Person in Canada

In Canada, the process of transferring a car loan can vary based on the lender, borrower qualifications, and certain legal requirements. This article will provide a comprehensive guide to transferring a car loan in Canada, with special attention to the procedures followed by some of Canada’s major banks, credit requirements, and refinancing options.

Can You Transfer Your Car Loan to Another Person in Canada?

Yes, it is possible to transfer a car loan to another person in Canada, but this process can be complex and is not universally available for all types of loans. Certain conditions must be met, and the loan transfer will be subject to approval by the lender. The individual assuming the loan must also meet the lender’s credit and income requirements. Typically the process of a loan takeover will be easier if the new borrower has a good credit score.

Transferring a car loan essentially means that the new borrower will take on the remaining balance and monthly payments. For a lender, this involves assessing the new borrower’s financial standing and ensuring they are a suitable candidate for the loan. The current borrower is required to settle any outstanding amounts on the loan before the transfer can be completed.

How to Transfer a Car Loan to Another Person

To transfer a car loan, here are the steps typically involved:

1. Contact Your Current Lender: Start by reaching out to your lender to see if they allow auto loan transfers and are willing to transfer the financed vehicle. Some lenders have strict policies against this, while others might offer transfer options under specific conditions.
2. Check Loan Terms: Review the terms and conditions of your loan agreement to see if there are any stipulations regarding transfers. Some loans may have restrictions or penalties related to transfers.
3. Find a New Borrower: The new borrower must meet the lender’s criteria. This can include minimum credit score requirements, stable income, and the ability to meet monthly car loan payments.
4. Application and Approval Process: The lender will evaluate the new borrower’s financial background. This process can include a credit check, proof of employment, and possibly other financial documentation.
5. Complete Required Documentation: Once approved, the lender will provide the necessary documents to formalize the transfer. Both parties may need to sign, and additional paperwork, such as a bill of sale, might be required.
6. Finalize Transfer and Registration: After the auto loan transfer is approved, the new borrower must re-register the vehicle with their information and set up their own auto insurance.

How Does the Process Work with Major Canadian Banks?

The process for transferring auto loans differs across financial institutions. Below is an overview of how four of the major Canadian banks—Scotiabank, RBC, BMO, and CIBC—typically handle car loan transfers:

Scotiabank

Scotiabank does not typically allow car loan transfers to another person. However, they do offer options to refinance a car loan, which could allow the new borrower to apply for their own loan to take over the payments. In such cases, Scotiabank would require the new borrower to go through the standard loan application process, after which they could use the funds to purchase the vehicle from the original borrower.

RBC (Royal Bank of Canada)

RBC also doesn’t typically support straightforward loan transfers, but they may facilitate the process indirectly. RBC encourages clients to explore refinancing options, which would mean the new borrower would apply for their own loan. The original borrower could use the new loan’s funds to pay off their existing loan and sell the car to the new borrower. This alternative might involve some additional fees.

BMO (Bank of Montreal)

BMO may consider car loan transfers under specific circumstances, but approval is subject to credit and income assessment of the new borrower. The original borrower would need to contact BMO to discuss the situation. If approved, the new borrower may need to complete a credit application and provide financial documentation.

CIBC

CIBC generally does not offer direct car loan transfers. They might, however, allow refinancing or the option for the new borrower to apply for a separate loan through CIBC, effectively enabling a transfer by paying off the original loan balance. As with other banks, this approach requires the new borrower to meet all eligibility requirements and complete a full application process.

Can You Transfer a Vehicle Loan to Another Bank in Canada?

Directly transferring a car loan from one bank to another is uncommon in Canada. Instead, a similar result can be achieved through loan refinancing or taking out a new loan with a different bank or a different lender. Here’s how this alternative approach works:

1. Refinancing with a New Bank: The new borrower can apply for a car loan with another bank and, if approved, use the funds from that loan to pay off the original loan. This effectively transfers the debt to the new bank, but it may result in different terms and interest rates.
2. Repayment and Reapplication: The original borrower repays the current loan balance (loan amount), and the new borrower completes an application with the new bank. This is essentially creating a new loan rather than transferring the original.

This indirect transfer process often incurs administrative fees and could lead to changes in monthly payments depending on the interest rates offered by the new lender.

Can You Transfer a Vehicle Loan to Another Person if You Have Bad Credit?

If you have bad credit, transferring a car loan becomes more challenging, but it’s not necessarily impossible. Approval largely depends on the new borrower’s financial standing rather than the current borrower’s credit score. However, some lenders may look at the overall loan history and payment records to ensure the loan is in good standing before considering a transfer.

If the loan is in default or has a history of late payments, the lender may be more reluctant to approve the transfer.

Can You Transfer a Vehicle Loan to Another Person if They Have Bad Credit?

Lenders prioritize risk assessment when approving a car loan transfer. If the new borrower has bad credit, it will likely reduce the chances of a successful transfer. That said, lenders consider more than just credit scores; they also look at income stability and overall debt-to-income ratio. If the new borrower’s income can reliably cover the loan payments, there may still be a chance for approval, though they may face higher interest rates.

If the new owner with poor credit has a co-signer with good credit, some lenders may be more inclined to approve the transfer.

How Do I Transfer a Car Loan to a Family Member in Canada?

Transferring a car loan to a family member follows the same process as any other loan transfer, with the advantage that lenders may be more open to approving transfers to a close family member. Here are a few steps to streamline this process:

1. Contact the Lender: Let them know you wish to transfer the loan to a family member. Some lenders may offer guidance or flexibility in family transfer cases.
2. Provide Necessary Documentation: The family member will need to submit a loan application and relevant financial documents.
3. Consider Co-Signing: If the family member does not meet the credit or income requirements alone, co-signing the loan could be a solution. In this case, the original borrower would remain partially responsible for the loan.
4. Finalize the Transfer: Complete any paperwork required by the lender to formalize the transfer. The family member will need to re-register the vehicle and insurance under their name.

Can You Refinance a Car Loan in Canada?

Yes, refinancing a car loan in Canada is a common practice and can be a viable option if you’re looking to change the loan holder. When you refinance, you essentially replace the existing loan with a new car loan, ideally at a lower interest rate or with better terms. Refinancing can also be done to transfer the loan to another person, indirectly.

Here are some reasons to consider refinancing:

• Lower Interest Rates: If interest rates have decreased since you took out your previous loan, refinancing can help you secure a lower rate, reducing your monthly car payments. The best interest rate that was available for your initial loan may not be the best rate that is available to you now. Your credit score and credit report may have improved as well which could result in a lower interest rate. 
• Change Loan Terms: You may wish to adjust the loan term, extending or shortening it to better suit the financial needs of the new borrower.
• Transfer to a New Borrower: As previously mentioned, refinancing with a new borrower in mind allows them to pay off the original loan by assuming a new one, effectively transferring the financial responsibility.

Conclusion

Transferring a car loan on a financed car in Canada is possible but requires careful planning and coordination with the lender. Each bank has specific requirements, and not all lenders support direct loan transfers. Indirect transfers through refinancing or new loan contracts are common and can be effective, provided the new borrower meets all necessary requirements.

In summary:

• Major Canadian banks like Scotiabank, RBC, BMO, and CIBC typically do not allow direct transfers, but refinancing options are available.
• Transferring a loan to someone with bad credit is challenging, though not impossible, if they have strong income or a co-signer.
• Refinancing can be a practical alternative for effectively transferring a car loan to a new borrower, including family members.

By following the steps and guidelines provided in this article, you can determine the best approach to transfer a car loan that suits both your needs and the financial institution's policies.