What to know about cash-back auto refinancing Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators that provide objective and original content. This allows you to conduct your own research and compare data for free to help you make financial decisions with confidence. Bankrate has agreements with issuers, including 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 come from companies that compensate us. This compensation could affect how and where products appear on this site, including, for example, the order in which they may appear within the listing categories in the event that they are not permitted by law. This applies to our mortgage, home equity and other home lending products. However, this compensation will affect the information we provide, or the reviews you see on this site. We do not cover the universe of companies or financial offers that may be open to you. Georgijevic/Getty Images
4 min read Published August 22 2022
Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers to navigate the details of borrowing money to purchase a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances with clear, well-researched information that breaks down complex topics into manageable bites. The Bankrate promises
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This compensation could affect the way, location and in what order products appear in listing categories, with the exception of those the law prohibits it for our mortgage or home equity products, as well as other products for home loans. Other elements, such as our own rules for our website and whether a product is offered in your area or at your own personal credit score can also impact the way and place products are listed on this website. While we strive to provide an array of offers, Bankrate does not include details about every financial or credit item or product. Cash-back is like in that you use it to get newterms that are more favorable to take over the current loan. However, in addition to that you'll also get an amount of cash in one lump as part of the refinance. The amount you receive depends on the equity that is present in your car. Auto owners might consider this type of refinance if they are in urgent need of cash for an emergency, but this option comes with the possibility of increasing the debt burden for the borrower. What is a cash-back refinancing? The cash-back loan refinance allows you to adjust to your existing loan and refinance to an amount greater than you owe, receiving that extra amount in cash. This type of loan is typically utilized by people who require additional funds. It takes what you can get from your car and turns it into cash you are able to take away. This means that while you refinance your current loan for a new term, you can get more money in cash by borrowing more than the real value of the car. There are not all lenders that provide this service and it can result in some drivers losing their vehicle completely because of the higher chance of being upside down . Being upside down means your outstanding loan balance is more than what the car is worth. In other words If you are owed $4,000 on an auto loan and the vehicle's value is only $2,000 you're upside-down on the loan. If you don't have plans to sell the car, then having it upside down isn't a major issue. Just continue to make payments and pay off the loan. If, however you plan to sell your car and are upside down, it could be a problem. You'll have to pay for the equity you're not able to use. How to apply for a cash-back auto refinancing The procedure to apply for a cash-back auto refinance is similar to the process you would do for the traditional . This is a simple process that requires documentation and study. Once you have determined how much your vehicle is currently worth -- via outlets such as Kelley Blue Book -- you will have an idea of the amount of equity that the vehicle has. This number will inform how much cash you could potentially receive. Finding a lender that offers cash-back auto refinancing is a bit more work. Not all lenders offer this service. After researching various lenders, you can compare their conditions and choose the one that is the best one for you. Take note of the amount of money you'll receive. After the application is submitted and loan approval, you'll leave with new loan conditions as well as the additional amount. Is cash-back auto refinancing a good idea? Deciding whether a cash-back auto refinance is the right choice that could lead to more financial troubles takes reflection on how you manage your finances. Since this option means you are borrowing more money than you already owe, you're creating more debt. If you're currently struggling to make the monthly payment, it may increase your financial burden. The two primary benefits of refinancing your cash-back loan are improved loan conditions and cash. Improvements in loan terms. Just as with traditional refinancing, you'll be offered better loan conditions through this method. But even if it is possible to lower the amount of your monthly payments however, you'll end up extending the lifetime of your loan and increasing the overall cost. Cash in addition. You'll get cash from cash-back refinances that can be helpful if you need additional funds in the event of an emergency. But this is a short-term solution that could lead to more expensive interest rates. Refinancing your auto with cash back is a ideal option if you've experienced a financial emergency and need money or need to alter your current loan to fit better with your needs. What is the maximum amount I can borrow via a cash-back loan? The amount that you can get, and consequently the amount of money you'll receive is contingent on a variety of variables. The lender. Not all lenders offer cash-back options due to the increased risk. The value of your vehicle. Your value for your car determines the amount your lender will loan you. The credit score of your history. As with most financial circumstances the credit score as well as your history serves as the main determinant for determining whether your loan will be approved. The higher your credit score and the better terms you can expect to be granted. Cash-back refinancing risks Before proceeding with cash-back auto refinance it is important to consider all the risks associated with it. Being upside down on a loan. It is more likely that you will be upside down or underwater on your loan. As the car's value depreciates your loan-to-value ratio rises. the risk of being in debt -- having to pay more than the vehicle is worth. Incurring more debt. The debt you take on more than you are owed will add more debt on your plate. Risk of repossession. If you are struggling to make the monthly payment, an extension of your loan could have not enough of a benefit to solve 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 loan, so you could have a limited number of alternatives to consider when looking for. The bottom line is that cash-back refinancing can be a good option if you're looking to secure better terms on your car loan or you run into an urgent need for cash. The first step in considering this kind of refinance is to research the current value of your car. This will allow you to determine how much money an lender might be willing to provide. But remember, there are risks involved in refinancing with cash back. You'll incur additional debt by refinancing your auto loan to a higher amount than the due and you risk becoming upside-down on the loan and vice versa. Find out more
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The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the details of borrowing money to purchase a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances through providing precise, well-studied information that breaks down otherwise complex subjects into bite-sized pieces.
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