At a Glance
Whether you’ve taken out a loan and are having trouble making your monthly payments, or the outstanding debt is making it difficult to qualify for additional financing that you want or need, you may be exploring your options and wonder if you can transfer your personal loan to another person who can pay it.
Unfortunately, this is generally not the case, but there are some other options you can explore to help protect your credit and creditworthiness.
In this article, you’ll learn:
What happens if you can’t repay a personal loan?
If you’re not able to repay a personal loan, a few big things can happen:
- Your credit score will take a big hit. Payment history makes up 35% of your score, and missed payments can have a huge negative impact. Your score also suffers if you’re sent to collections.
- You could be sent to collections. If the lender sends the loan to a collection agency, your life will get a lot more stressful. Not only will you be contacted relentlessly by the agency, but the default will be reported to the credit bureaus and remain on your credit report for up to seven years.
- If your loan is secured, your assets will be seized. Most loans are unsecured, but if you have a lower credit score or want a lower interest rate, you can apply for a secured personal loan. In this case, the loan would be secured using assets like a car, house, investment account, or something similar as collateral. If you don’t repay the loan, the lender can seize your assets.
- It will be more difficult to qualify for financing in the future. Not only will your score be lower, making it more difficult for an application to get approved, a default on your credit history signifies to lenders that you’re a high-risk borrower and they may not approve your future applications.
Related: Defaulting on a Personal Loan
Can you transfer your personal loan to someone else?
A personal loan cannot be transferred to another person. A lender approves your loan application based on your creditworthiness alone, the interest rate and loan terms were based on your credit score, and you were given the funds up front. Transferring a loan to someone else whose credit score differs could be a big risk to lenders.
Even though you can’t transfer your personal loan to someone else, there are some alternatives you can explore if you need help with payments.
Alternatives to transferring a loan
Instead of transferring a personal loan, some other options you can consider include:
1. Adding a co-signer
A co-signer is a trusted friend or family member who helps you get approved for a loan, essentially taking on legal responsibility for repaying the loan if you are unable to.
Technically you can’t add a co-signer after you already have the personal loan funds, but if you have concerns about being able to repay the loan before you even apply, you should consider asking someone to co-sign it with you to increase your chances of approval. Because their credit, income, and other factors are also considered, you may even get a lower interest rate.
Learn more: Personal Loans with a Cosigner
2. Debt consolidation
If you have multiple existing loans or debts you are having difficulty paying, you can consolidate your debt. Debt consolidation is when you take out one, single loan to pay off multiple existing debts. When the loan is approved, you can use the money to pay off other lenders and then will only have payments on your new loan.
The perk of using a debt consolidation loan is that if your new loan has a lower interest rate than your other debts, you’ll be able to save significant money on interest. Other benefits include simplified payments, fixed repayment terms, and even being able to pay off your debt faster.
Learn more: What is Debt Consolidation & How to Do It?
3. Use a home equity loan
If you own your home, you likely have home equity, which is the amount of your home that’s been paid off. A home equity loan is a loan that uses your home as collateral, and the amount you’re able to take out depends on your home’s current market value, your creditworthiness, income, and other factors. You’ll pay the loan back in fixed monthly payments over the designated term.
Because your home is used as collateral, these loans often have lower interest rates. However if you fall behind on payments, you could lose your home. There are also closing costs and fees associated with these loans.
Learn more: How Does a Home Equity Loan Work?
Transferring other types of loans
While a personal loan cannot be transferred, mortgages and auto loans can under certain circumstances. For example, the new borrower must be able to qualify (or requalify) for the loan.
In order to transfer a mortgage, it must be assumable, meaning the loan agreement allows for the debt to be transferred to another person. Not all mortgages allow this, but even if yours doesn’t, you have options.
In the event your transferable mortgage isn’t assumable, a new borrower can apply for a brand new mortgage and use that to pay off your old mortgage. Ideally they have a lower interest rate and shorter repayment period, allowing you to save money.
2. Auto loans
Auto loans are more easily transferable and can be done either with the same lender or a new one. As long as the new borrower can qualify for the car loan, the lender may agree to transfer the loan to them in their name.
Or, the new borrower may prefer to get a new loan from another lender. In this case the new lender would pay off the old car loan, and the new borrower would pay off the new loan. As with a transferable mortgage, ideally the new lender offers lower interest rates and better terms.
Co-signers and co-borrowers are not the same. A co-signer does not take on any financial responsibility for a loan unless the primary borrower defaults on their payments, and is usually used to help someone get approved for a loan who might otherwise not get approved. A co-borrower is someone who agrees to take on the responsibility of the loan with you, equally responsible for making payments and legal rights to the asset.
Learn more: Co-Borrower Vs Co-Signer
Yes, a personal loan balance transfer can be done. This can be a good option if the credit card or balance transfer card you’re transferring to has a lower interest rate than the original loan, or if it has a 0% APR introductory period where you will owe no interest on the balance for a certain period of time.
Related: Personal Loan Balance Transfer
In some cases, yes. Federal banking laws and regulations permit banks to sell mortgages or transfer the servicing rights to other institutions without consumer consent. However, the bank or new servicer must typically comply with certain procedures notifying you of the transfer.
Yes. Transferring your loan to a credit card can impact your score when you apply for the new card due to the hard credit inquiry. It also affects the length of your credit history. However, making payments on time and in full each month can help increase your credit score. Also remember that the account from which you transferred the debt will still remain on your credit report even if you close it.