How to swap cars with someone?

August 2, 2011 12:52 AM

How can two people legally swap car ownership with minimum fees in California?

Two years ago, I financed a fancy car. Now I don't want to pay for it any more, but I have a friend who does, and who has an old car which I'd be happy with.

How can we legally exchange the cars and pay the minimum of fees? He'll take over my loan, and I'll get his fully-paid car in exchange, so this is not a sale. We are both California residents.

posted by harwons to Grab Bag (11 answers total)

I'm not familiar with California law, but I've previously purchased a car where the owner simply provided me a hand-written bill of sale with a purchase price of $10 or so. That was the basis for the tax I paid on the transaction. Of course, you'll still have to transfer title, but that would be the case no matter what.
posted by Gilbert at 1:45 AM on August 2, 2011

No agreement that's just between you and your friend can change the fact that YOU are the person the bank will come after if your friend stops making payments. To get away from that situation, your friend will need to get his own loan and buy your car from you, and you'll have to pay off your current car loan in full.

I don't know whether there's any hope of reducing the amount of sales tax you'll each owe. In Ohio, where I live, this situation would be treated like a sale no matter what you personally felt like calling it.
posted by jon1270 at 3:12 AM on August 2, 2011 [1 favorite]

Call whoever has the title for your car and ask if there is a process to assign the loan to a third party. You don't own your car, the bank or finance company does.
posted by COD at 5:27 AM on August 2, 2011

Remember, the financier hasn't run a credit check or anything on your friend! They'll need to consent, which probably means your friend applying for a new loan.
posted by katrielalex at 5:53 AM on August 2, 2011

Response by poster: Thanks for the answers so far.

We can assume that I have a great deal of trust in my friend, and he'll pay the loan and so on.
posted by harwons at 6:10 AM on August 2, 2011

Sure, you "have a great deal of trust" in your friend, but the bank that holds your title owns the car and must consent. Call them.
posted by FlyingMonkey at 6:31 AM on August 2, 2011 [1 favorite]

It doesn't matter if you are talking about selling the car to your mother, you and only you are 100% responsible for the loan, and there is probably language in there too requiring you or at worst a family member to be the primary driver. Giving the car to somebody that is not on the hook financially represents risk for the lender too, and they probably accounted for that in the fine print of your loan document by forbidding what you want to do.

Call the lender, of get a check from your friend that pays off the loan. Those are really your only two options.
posted by COD at 6:38 AM on August 2, 2011

The bank also has the right to stipulate terms of insurance that are to be carried on the car, to protect their interest in it. Insurance for the car your friend will be getting depend on many things, such as FICO score, address, driving record, previous insurance record, etc. Your friend may qualify for state minimum deductibles in liability and medical on their current beater, but be unrateable or rateable only at exorbitant premiums for comprehensive and additional liability coverage necessary to protect the bank on your current vehicle. What you may save in lower coverages on the beater you're getting, your friend will be picking up on insurance on your car, no doubt.

Also, if the difference in retail value of the cars is in your friend's favor by any substantial amount, you may incur Federal gift tax.
posted by paulsc at 6:44 AM on August 2, 2011

He'll take over my loan, and I'll get his fully-paid car in exchange, so this is not a sale.

It's actually 2 sales in the eyes of California DMV and sales taxes will be charged to both new owners.
posted by buggzzee23 at 6:44 AM on August 2, 2011

CA doesn't care about how much you say your car is worth, it cares how much the car is worth. You will both pay taxes based on the calculated worth of each car. And registration requires documentation from the lienholder, so you can't leave the bank out of a sale.

Sell each other the cars, pay the proper taxes and registration, let your friend figure out how to finance the car you sell him.
posted by Lyn Never at 9:55 AM on August 2, 2011 [1 favorite]

Best answer: Here's how we ended up doing it:

My friend and I went to the bank. He paid with cash the remaining portion of my loan. The car then became mine, and the bank mailed the title (pink slip) to an address that we designated.

We also ran a smog check on his car, but not on mine (since my car hasn't changed owners).

Once we got the pink slip and the smog check done (electronically sent to DMV), we went to AAA. They changed the car registrations ($15 each), and then we changed our insurance policies.
posted by harwons at 1:25 AM on September 5, 2011 [1 favorite]