What to know about cash-back auto refinancing Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial choices by providing you with interactive financial calculators and tools as well as publishing original and impartial content, by enabling you to conduct research and compare data for free - so that you can make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies who pay us. This compensation can affect the way and where products appear on the site, such as, for example, the order in which they be listed within the categories of listing, except where prohibited by law for our mortgage, home equity and other home lending products. However, this compensation will affect the content we publish or the reviews you read on this site. We do not include the vast array of companies or financial offers that may be available to you. Georgijevic/Getty Images
4 minutes read. Published August 22, 2022
Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the ins and outs of securely taking out loans to buy cars. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances by providing precise, well-researched, and clear information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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We receive compensation for placement of sponsored products and services, or through you clicking certain links posted on our website. This compensation could influence the manner, place and when the products are listed within categories, with the exception of those prohibited by law for our mortgage or home equity products, as well as other products for home loans. Other factors, such as our own proprietary website rules and whether a product is available within your region or within your own personal credit score could also affect the way and place products are listed on this website. Although we try to offer the most diverse selection of products, Bankrate does not include information about every financial or credit item or product. Cash-back works in the sense that you apply to receive newterms that are more favorable to replace the current loan. But, along with that you'll also get an amount of cash in one lump as part of the refinance. The amount you will receive is contingent on the equity that is present in your vehicle. Car owners may consider this refinance option if they're in need of money for an emergencysituation, but this option comes with the potential of increasing the amount of debt the borrower has to pay. What is cash-back auto refinancing? A cash-back auto loan refinance permits you to adjust the current loan and refinance it to an amount that is more than you owe, receiving that extra amount in cash. This type of loan is often employed by people who require more money. The process takes into consideration the worth of your vehicle and turns it into cash that you are able to take away. This means that if you refinance your existing loan for new terms you can get more money in cash by borrowing more than the real value of the car. Not all lenders offer this service, and it may cause some people to lose their vehicle completely due to the greater chance of becoming upside down . Over-indebted means that your outstanding loan amount is greater than what the car is worth. So that if you have a debt of $4,000 on the car loan, but the car's value is only $2,000, then you're upside down in the loan. If you don't have plans to sell the car, then having it upside down is not necessarily a problem. Continue to make your payments and repay the loan. If, however you are planning to sell your vehicle but are in a position of being upside down, that could be a hassle. You'll need to pay off the negative equity yourself. How to apply for auto refinancing with cash back The process of applying for cash-back auto refinance is the same as what you'd apply for a traditional . This is a simple process that requires paperwork and study. After determining the value of your car today worth using sources like Kelley Blue Book -- you'll have an idea of the amount of equity in the vehicle. This will help you determine the amount of cash you could possibly receive. Finding an lender that provides auto refinancing with cash-back will require a bit more work. Some lenders do not provide this service. After researching various lenders, you can compare their conditions and choose the one that is best for you. Pay special attention to the amount you'll get. After the application is submitted and loan approval you will be able to walk away with new loan conditions and additional cash. When is cash-back auto refinancing a good idea? Deciding whether a cash-back auto refinance is an option that could result in more financial troubles takes reflection on how you manage your finances. Because this choice means borrowing more than you currently owe, you are creating more debt. If you are currently struggling to make the monthly payment, it may worsen your financial situation. The two primary benefits of refinancing cash-back are better loan terms and additional cash. Improved loan terms. Just as with traditional refinancing, it is possible to be offered better loan terms through this process. However, even if it's possible to lower your monthly payment but you'll be prolonging the life of the loan and increasing your overall cost. Cash in addition. You will receive money from a cash-back refinance which is particularly helpful if you need additional cash in case of an emergency. It's a temporary option that can lead to increased rates of interest. Cash-back auto refinancing is ideal option if you've faced a financial crisis and require cash or to adjust your current loan to fit better with your lifestyle. How much can I get via cash-back loan? The amount that you can take out, and the amount of cash that you will receive is contingent on a few factors. The lender. Not all lenders offer cash-back options due to the higher risk. Value of the vehicle. Your value for your car determines the amount your lender will give you. The credit score of your history. As with most financial circumstances the credit score as well as your history serve as the core measure to determine if your loan is approved. The better your credit score the better the conditions you'll receive. Cash-back refinancing risks Before proceeding with cash-back auto refinance it is crucial to think about all the risks that come with it. Being upside down on a loan. You're more likely to end up underwater or upside down with your loan. When the value of your car decreases your loan-to-value ratio rises. the chance of becoming underwater -- owing more than what the car is worth. Incurring more debt. Borrowing more than you owe will add more debt on your plate. The risk of repossession. If you're struggling to keep up with your monthly payments, an extension of your loan may just not suffice to address deeper financial problems. It could be that your car will be taken away if you don't pay. There are only a handful of lenders available. Not all lenders offer this type of financing , and you'll have only a few options to choose from when shopping around. The bottom line is that cash-back refinancing can be a good alternative if you're trying to secure better terms on your auto loan or if you have urgent cash needs. The first step when considering this kind of refinance is to determine the present value of your vehicle. This will let you know the amount of money a lender could be willing to give you. However, be aware of the dangers associated with refinancing with cash back. There is a higher risk of debt when refinancing the auto loan in excess of what is due and you risk becoming upside-down on the loan as well. Learn more
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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ins and outs of securely taking out loans to purchase a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down complicated subjects into bite-sized pieces.
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