Consumer Protection Law
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As long a niece agrees to this transaction, then there is nothing improper about giving her physical possession of the vehicle and letting her make payments to you so that upon the final payment, you will transfer the title.
The only issue would be with things like insurance and registration because if the title is not in niece's name, she can't get insurance or register the car in her name. If she got into a wreck, if there were injuries, then the other side could come after daughter for damages.
Typically in a situation like this, the title is transferred but daughter would just be listed as a lienholder on the title. That way the car is out of her name, but the loan is secured by the title and if niece defaults, you can just repo the car.
But there is nothing illegal about doing it the way you propose. It is just riskier for daughter.