Can Personal Loans Be Transferred to Another Person?

Not usually, but there are exceptions

Generally, personal loans cannot be transferred to another person because these loans are determined based on your credit score and list of available sources of income. Some types of personal loans, such as signature loans, require your signature and use your promise to pay as collateral.

Key Takeaways

  • In most cases you cannot transfer a personal loan to another person.
  • If your loan has a cosigner or guarantor, that person becomes responsible for the debt if you default on the loan.
  • Defaulting on a personal loan is seriously injurious to your credit score.
  • Car loans and mortgages can be transferred to another person under certain circumstances.

What Happens If You Do Not Repay a Personal Loan?

When you do not pay back a personal loan, particularly a signature loan, your credit score takes a major hit. Your lender can send the loan to a collection agency, which will make your life very stressful, and report your default to the three credit bureaus: Experian, Equifax, and TransUnion.

A loan default stays on your credit score for seven years after the final payment date. To prevent long repayment periods, a lender can include a set-off clause in the personal loan contract. A set-off clause allows the lender to seize your funds from a specific bank account.

In order to mitigate the risk of defaulting on a loan, it's important to know exactly what you can afford to pay back before you agree to anything. A personal loan calculator is an excellent tool for determining what the monthly payment and total interest should be for the amount you intend to borrow.

What Happens When You Have a Cosigner or Guarantor?

Although a borrower cannot transfer the responsibility of a personal loan, another person can become liable for the remaining balance of someone's personal loan when they take out the loan with a cosigner or guarantor. If you default on the loan, you make the cosigner or guarantor liable for unpaid balances.

Cosigners are every bit as legally responsible for the personal loan as the person to whom the loan is issued. While lenders need to prove they pursued the primary borrower extensively before contacting the guarantor, said guarantor is still responsible for any unpaid balances.

While you cannot transfer most personal loans to another person, some types are transferrable in certain situations.

Transferring Mortgages and Car Loans

Mortgages and car loans are unlike other types of personal loans in that they can be transferred. However, they can only be transferred to another borrower under certain circumstances. For one thing, the new borrower must be able to qualify for the loan. If it’s a mortgage, they will need to requalify, which means having a credit score equal to or greater than the original borrower’s.

A transferrable mortgage must be assumable, which means that the loan agreement allows for the debt to be transferred to another person. Not all mortgages meet this criterion; in fact, such mortgages are rare. However, a new borrower can start over with a brand new mortgage, which the new borrower would use to pay off your mortgage. They would then have a lower mortgage payment and potentially a shorter repayment period.

It is somewhat easier to transfer a car loan to another person, either with the same lender or a new one. If the new borrower can qualify for the car loan, the lender may agree to transfer the loan into their name. However, the new borrower may prefer to get a new car loan from another lender. The new lender will pay off your car loan, and the new borrower will benefit from lower payments and a shorter repayment period.

Are All Mortgages Transferrable?

No. In order to transfer your mortgage, it must be assumable. To be assumable, the mortgage must be allow the debt to be transferred to another person. The other person must be able to qualify for the mortgage on their own credit as well.

What Happens to my Personal Loan When I Die?

If you die with a personal loan, the debt is transferred to your estate, which will then have to pay your creditors. The only way that the debt is not paid is if there is nothing left after the total estate has been liquidated. The debt does not pass on to descendants and relatives.

How Long Will My Personal Loan Default Stay on my Credit Report?

Defaulted loans typically stay on your credit report for seven years.

The Bottom Line

Most personal loans cannot be transferred to someone else. There are rare exceptions to this rule, such as mortgages and car loans, but even then, it is easier to qualify for a new mortgage or car loan to pay off the existing loan. If considering a personal loan, make sure you can repay the loan in full.

Article Sources
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  1. "Credit Issues."

  2. Consumer Financial Protection Bureau. "Differentiating Between Secured and Unsecured Loans," Page 3.

  3. Consumer Financial Protection Bureau. "My Debt Is Several Years Old. Can Debt Collectors Still Collect?"

  4. Federal Trade Commission. "Cosigning a Loan FAQs."

  5. Federal Trade Commission. "The Real Estate Marketplace Glossary: How to Talk the Talk," Page 2.

  6. Consumer Financial Protection Bureau. "Does a Person's Debt Go Away When They Die?"

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