The Basics of Assuming a Car Loan

If you need a new car and do not want to hassle with an entirely new car loan, an option may be assuming a car loan. Before you can assume a car loan, you must first have the vehicle's owner contact the finance company to make sure they allow someone to assume the loan. There are some lenders who do not allow people to assume loans, and if this is the case, the owner will have to sell you the car outright.

Approval Decision

The lender will pull a credit report. One of the major benefits of assuming a car loan is that you do not have to pay a down payment and various other fees involved with the initial finance of a vehicle. Because of the reduced fees, the lender will want to be sure you have the income to handle making the monthly payments.

After pulling a credit report, the lender will assess whether or not you are approved to assume the car loan. The lender will examine your monthly income and debts closely to determine whether you can make your payments. If you are not approved to assume the car loan, you may be able to offer some collateral in order to assume the loan. Once you are approved to assume the loan, you will receive a new loan agreement from the lender.

Loan Agreement

When you get the new loan agreement, pay close attention to the terms. Make sure you agree with everything before you sign it. Remember that the payment amounts and due dates probably will not change even though you are assuming the loan. This may mean that your next payment is due very soon. Sign the agreement only when you know you understand and agree with everything in it. If you have any questions about, contact either the finance company or your lawyer.

Insurance Coverage

Before you can take ownership of the car, you will need to be able to show that you have full coverage auto insurance to cover the vehicle in the event of any accident until the loan has been paid in full. Secure your full coverage with the required deductibles with the company of your choice and provide this proof to the finance company. Be sure to get at least three quotes before deciding on any insurance policy so that use the best rate.

Begin Making Payments

When you have signed the loan agreement, you will need to start making payments right away. Make the payments according to the agreement, until the vehicle is paid in full. If you experience difficulty making payments, keep the finance company aware of the situation to avoid any negative impact on your credit rating.

For those who do not have the funds to purchase a car directly from a dealership, taking over the payments on a vehicle is another viable method. If credit is an issue, you may not be able to assume the loan. A cosigner may be an option, but having a cosigner on hand would also increase the chance of being able to go directly to a dealer.

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