Top Cash-Out Auto Refinance Loans of December 2024

How to qualify for cash-back auto refinancing

You'll need to have equity in your vehicle. This means the value of your car must exceed the amount you still owe on it. Since cars typically depreciate or lose value fairly quickly, it isn't common to have a lot of equity in a vehicle. An exception might be if you've paid extra on the loan to reduce what you owe faster than the car depreciates. Also, some makes and models of cars may hold their value longer. Auto lenders that offer cash-out refinancing will usually make loans up to 100% of a car's value, but some will go higher.

Here's an example of how cash-out auto refinancing works. If you owe $5,000 on your car loan, and your vehicle is worth $10,000, you have $5,000 worth of equity. If you qualify for a cash-out auto refinance loan, you can get $5,000 to pay off the original loan and receive $5,000 in cash, usually in the form of a check. You would now be paying off a $10,000 loan with a new interest rate.

You'll have to meet lender credit requirements. As with any auto loan, lenders will consider factors like your credit history, credit score, payment history and and future ability to repay the loan. In fact, some lenders have stricter requirements for cash-out auto refinancing compared to other types of auto loans. That's because borrowing more than a car is worth may indicate financial problems, and lenders want to avoid putting borrowers in a situation of not being able to make their loan payments.

Questions to ask about cash-out auto loan refinancing

Getting cash back when refinancing your car can be useful in some situations, but it can also come with risks. Here are some questions to help you decide if it’s the right solution for you.

How does cash-out auto refinancing compare with other options? If you have a financial emergency and are considering a high-rate payday loan or credit card advance, cash-out refinancing might be a lower-rate alternative. That’s because auto loans are secured by your vehicle, so if you default on an auto loan, lenders can repossess the car to recoup their losses. On the other hand, if you can qualify for a personal loan, even if the rate is higher, it could be an option that doesn’t put your vehicle at risk.

Could cash-out refinancing cause negative equity problems? When your auto loan balance exceeds what your car is worth, it’s called negative equity or being upside down on a car loan. Some lenders will allow you to borrow more than your car’s value, putting your car's loan-to-value ratio at more than 100%. If you owe 150% of your car’s value, and it’s totaled, your insurance company would pay 100% of the car’s value, and you would owe the remaining balance of your loan.

Also, it can be difficult to trade in or sell a car with negative equity, so cash-out refinancing might not be a good idea if you don’t plan to keep your vehicle for a while.

Will cash-out auto refinancing increase your monthly car payment? If you increase your loan balance by borrowing extra cash, but you don’t extend the loan term or reduce your rate significantly, you’ll pay a higher monthly payment. Can you afford to make this higher payment for months in exchange for cash now?

Will auto refinancing alone reduce your monthly expenses? If refinancing by itself would greatly reduce your interest rate and monthly payment, it could make sense to use cash-out refinancing for quick access to money. For example, if you financed at a dealership with a high rate, and now interest rates have dropped, you might save enough to outweigh the cons that come with cash-out auto refinancing.

However, if you're already struggling to pay debts, increasing what you owe through cash-out refinancing may not be a good idea — especially if you extend the loan term. Along with increasing your outstanding debt, you’re likely to pay much more in interest over the life of the loan.