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Transferring an Auto Loan

Mark Cappel
UpdatedJun 29, 2009

My daughter wants my car but can't make the payments. What are our options?

My daughter wants to take out a loan to pay off MY car loan (she likes my car and doesn't want me to trade it in). She can't afford the monthly car payment I currently have. So, she wants to take out a loan to pay off the car (approx. $11k). What's the best approach to do this?

First, congratulations on being perhaps the coolest parent on the planet. In my experience as a parent of driving-age children, not one has expressed an interest in driving my cars, let alone owning them. The fact that your daughter not only wants your car but is willing to go into $11,000 in debt to get it shows either your superior coolness in choosing cars or her lack of taste. But since we all know daughters possess the finest detectors of coolness, it's unlikely she lacks taste.

There are many facts you don't include your question so I need to make some assumptions. I will assume that because you have a daughter old enough to drive, you have a long credit history and purchased the car with good credit, which resulted in you getting an attractive interest rate. I will also assume your daughter has not created much of a credit history, which will bump-up the available interest rate available to her significantly. Being the cool parent you are, you're willing to co-sign on her car loan, which will bring the interest rate down from the stratosphere.

Financing a $11,000 used car for 36 months at 10% (which is currently the national average) results in a monthly payment of $355. Your payment may be higher today because your term was shorter than 36 months, or because your current loan amount is greater than the market value of the car.

If your daughter lives with you, you might be able to keep her on your vehicle insurance policy, which will result in some savings. It's impossible to add in a monthly cost for insurance because I don't know where you live, your driving record, her driving record, and the type of car. If your daughter is young and wants your car it is probably one that's expensive to insure. Let us add $100 per month for insurance for the sake of argument.

Then there's maintenance. She needs to set aside an appropriate amount for the car given its age, the number of miles she will drive per month, the make and model, and how aggressively she drives. Again, given that she wants your car, it's probably sporty or a SUV that will require expensive maintenance. Let us add $45 per month for maintenance.

We're at $500 per month before fuel. You can do the math on that.

Let us say she finds a lender (such as her bank or credit union) that will finance the entire amount. You and your daughter need to look at her income, fixed expenses, and debt load to decide if she can afford $500 per month, plus the price of fuel. Perhaps she needs a hard lesson in setting realistic expectations if her income is limited.

One alternative is for you two to work out a parent-daughter financing plan. Obviously, I do not know anything about your financial situation, if other children are involved (who will eventually demand a similar deal in the name of fairness), or your daughter's finances. Which approach is best depends on factors someone outside of your family can't calculate.

A good place to learn more about auto loans is the auto loan page.

Finally, you may want to show your daughter our free budget guide, which can help her manage her money.

I hope this information helps you Find. Learn & Save.