Woodland Hills, CA asked in Banking, Consumer Law and Contracts for California

Q: When a lender sells an auto loan contract to a second lender, what are the typical expectations regarding the continuity

1.When a lender sells an auto loan contract to a second lender, what are the typical expectations regarding the continuity of the loan terms, including the principal balance, interest rate, and repayment terms?

2.Can a second lender reset the loan as if it were a brand new contract with different terms, such as a higher principal amount and interest? Under what circumstances would this be permissible?

3.What rights and obligations do I have as a borrower when a loan is transferred to a new lender? Are there any specific laws or regulations that protect borrowers in this situation?

1 Lawyer Answer
James L. Arrasmith
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  • Consumer Law Lawyer
  • Sacramento, CA
  • Licensed in California

A: 1. When an auto loan is sold to a second lender, the expectation is generally that the original loan terms—including the principal balance, interest rate, and repayment schedule—will remain the same, unless the original loan agreement provides otherwise.

2. A second lender usually cannot unilaterally change the terms of the loan, such as resetting the principal amount or interest rate, without your express consent. Changes to the loan contract that are not authorized by the original agreement or without the borrower's consent could be considered unlawful.

3. As a borrower, you generally retain the same rights and obligations under the original loan agreement when your loan is transferred to a new lender. Federal laws such as the Truth in Lending Act and state laws may provide additional protections, requiring the new lender to provide you with written notice detailing your obligations under the new ownership.

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