Transfering an Auto Loan to a Different Financial Institution

When you transfer an auto loan to a different lender, you are paying off the existing loan with a new one. The main reason a borrower will seek this option is to refinance the auto loan at a lower interest rate. There are benefits and drawbacks to pursuing this option.

Benefits of Transferring an Auto Loan

• Save money by refinancing at a lower interest rate.
• Consolidate more than one car loan into a single monthly payment.
• Opt for a shorter payment schedule if you have more liquidity now than when you sourced the loan.
• Opt for lower monthly payments if you have less liquidity now than when you sourced the loan.

Downsides of Transferring an Auto Loan

• Pay fees and penalties to the original lender for the loan modification; these fees may outweigh the interest rate savings.
• Receive a negative mark on your credit report for modifying a loan.
• Have difficulty receiving a new auto loan in the future, particularly from an auto manufacturer financing department.