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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 better financial decisions by offering you interactive tools and financial calculators as well as publishing original and impartial content, by enabling you to conduct research and compare data for free to help you make sound financial decisions. Bankrate has agreements with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn money The products that appear on this site come from companies that compensate us. This compensation could affect how and when products are featured on this site, including for instance, the order in which they appear within the listing categories and other categories, unless prohibited by law. This applies to our mortgage or home equity products, as well as other home loan products. But this compensation does affect the information we provide, or the reviews that you read on this site. We do not include the entire universe of businesses or financial deals that might be accessible to you. Georgijevic/Getty Images
4 min read Published August 22, 2022
Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the details of taking out loans to buy an automobile. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances by providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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Therefore, this compensation may impact how, where and when products appear in listing categories, with the exception of those prohibited by law for our mortgage, home equity and other products for home loans. Other factors, like our own proprietary website rules and whether or not a product is available within your region or within your self-selected credit score range may also influence how and when products are featured on this website. We strive to offer the most diverse selection of products, Bankrate does not include specific information on every financial or credit products or services. Cash-back works in the sense you can apply for newterms that are more favorable in exchange for your current loan. In addition you'll also receive the cash lump-sum in the refinance. The amount you get is contingent on the equity that is present in your car. Car owners may consider this kind of refinance when they're in dire need of cash to cover an emergency, however this option comes with the potential of increasing the borrower's debt. What is a cash-back refinancing? The cash-back loan refinance allows you to modify your current loan and refinance it to the amount higher than you owe, receiving the additional amount in cash. This kind of loan is typically employed by people who require additional funds. The process takes the value of your vehicle and turns it into cash you can take home. That means that when you refinance your existing loan for a new term, you will get additional money in the form of cash when you borrow more than the real value of the vehicle. Not all lenders provide this service, and it may cause some people to lose their car completely due to the increased possibility of being upside down . Being upside down means your outstanding loan balance is more than the vehicle is worth. So 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 have no plans to sell your vehicle, then being upside-down is not necessarily a problem. Continue to make your payments and pay off the loan. If, on the other hand, you hope to sell your vehicle and are upside down, it could be a challenge. You'll need to pay off the equity that is negative. How do you apply for auto refinancing with cash back The process of applying for cash-back auto refinances is the same as what you would do for the traditional . The only difference is that you need to fill out documentation and study. After you determine what your car's currently worth -- using websites like Kelley Blue Book -- you'll have an idea of the equity in the vehicle. This number will inform the amount of cash you could potentially receive. Finding a lender that offers cash-back auto refinancing is some effort. Not all lenders provide this service. After looking into different lenders, look at their conditions and choose the one that is best for you. Be sure to pay attention to the amount you will receive. After the application and loan approval you will leave with new loan terms and the extra cash. Is cash-back auto refinancing a good idea? Deciding whether a cash-back auto refinance is the right choice that could result in more financial troubles takes an examination of the way you spend your money. Since this option means you are borrowing more money than you already owe, you're creating more debt. If you're currently having difficulty making your monthly payments, this may worsen your financial situation. Two of the main advantages of refinancing your cash-back loan are improved loan terms and additional cash. Improved loan terms. Just as with traditional refinancing, you'll get better loan terms with this method. However, even if it's possible to lower your monthly payment however, you'll end up extending the lifetime the loan and increasing the total cost. Cash in addition. You'll receive cash through a cash-back refinance, which can be especially useful if you require additional cash in case of emergencies. But this is a short-term option that could result in increased interest rates. Cash-back auto refinancing is good idea if you had a financial emergency and require money or to alter your current loan to suit your lifestyle. What is the maximum amount I can borrow with cash-back loan? The amount you can take out, and the amount of money you'll receive is contingent on a number of factors. The lender. Some lenders do not offer a cash-back option because of the risk. Vehicle value. Value of the vehicle determines the amount your lender will give you. Your credit history. Like most financial situations the credit score as well as past history serve as the core measure for whether your loan is approved. The higher your credit score the better the terms you will be granted. Cash-back refinancing risk Before proceeding with cash-back auto refinance it is important to consider the various risks that go along with it. Turning upside down on 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 increases the likelihood of being in debt -- having to pay more than what the car is worth. Incurring more debt. In fact, borrowing more than you owe stacks even more debt on your plate. The risk of repossession. If you're struggling to keep up with the monthly payment, the extension of your loan may not be enough to fix more serious financial issues. This could mean that your car is taken away if you don't pay. There are only a handful of lenders available. There aren't many lenders that provide this kind of financing , and you'll be stuck with very few options to choose from when you are looking around. The bottom line Cash-back refinancing can be a good option if you're looking to secure better terms on your car loan or if you have the need for cash in an emergency. The first step to consider this type of refinance is to research the current value of your car. This will let you know the amount of money a lender could be willing to offer. But remember, there are risks involved in the refinance of a cash-back. You'll incur additional debt by refinancing your auto loan to a higher amount than the due and you run the risk of becoming upside down on the loan and vice versa. Learn more
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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 buy cars. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to take control of their finances through providing concise, well-researched and well-researched content that breaks down complicated topics into digestible chunks.
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