Personal loans cannot be transferred to another person, because these loans are determined based on your unique credit score and your 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.

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.

What Happens When You Have a Co-Signer or Guarantor?

The only instance in which another person can become liable for the remaining balance of your personal loan is when you take out the loan with a co-signer or guarantor.

Co-signers 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, a guarantor is still responsible for any unpaid balances.

A borrower cannot transfer the responsibility of his personal loan. However, by defaulting on his personal loan, he makes his co-signer or guarantor liable for unpaid balances.

While you cannot transfer a personal loan to another person, other types of loans 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, he or she will need to requalify, meaning they must have a credit score equal to or greater than the original borrowers.

In order to be transferred to a new person, a 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. He or she 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 his or her 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.