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4 minutes 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 in navigating the ins and outs of securely taking out loans to buy a car. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with clear, well-researched information that breaks down complex subjects into digestible pieces. The Bankrate promise
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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 home lending products. Other factors, such as our own rules for our website and whether the product is offered in the area you reside in or is within your own personal credit score can also impact the way and place products are listed on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Cash-back works in the sense you can apply for newterms that are more favorable to take over the current loan. But, along with that you’ll also receive the cash lump-sum 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 funds for an emergency, but this option comes with the potential of increasing the debt burden for the borrower. What is cash-back auto refinancing? Cash-back Auto loan refinance permits you to adjust your current loan and refinance it to an amount greater than you owe, receiving the additional amount in cash. This kind of loan is typically employed by people who require additional funds. This process is a way to take into consideration the worth of your vehicle and turns it into cash that you can walk away with. That means that when you refinance your current loan to new terms, you’ll receive additional funds in cash, by borrowing more than the real value of the car. Not all lenders provide this service and it could lead to some motorists losing their vehicle altogether because of the higher chance of being upside down . Over-indebted means that the outstanding loan amount is greater than the value of the vehicle. So If you are owed $4,000 on an auto loan, but the car’s value is only $2,000, then you’re upside down with the loan. If you have no plans to sell your car, 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 trade in your vehicle, being upside down can be a problem. It is necessary to pay off the negative equity yourself. How to apply for cash-back auto refinancing The process of applying for cash-back auto refinances is similar to the process you’d apply for a traditional . The only difference is that you need to fill out documentation and research. After determining how much your vehicle is in value — via outlets such as Kelley Blue Book — you will have an idea of the equity in the vehicle. This figure will tell you the amount of cash you could get. Finding an lender who offers cash-back auto refinancing is a bit more work. Some lenders do not offer this service. After researching different lenders, you can compare their conditions and decide which is the best one for you. Be sure to pay attention to the amount of money you’ll receive. After the application is submitted and loan approval you will walk away with new loan terms and the extra cash. Is cash-back auto refinancing an option? Deciding whether a cash-back auto refinance is a choice which could cause greater financial problems requires review of your spending habits. Since this option means you are borrowing more money than you already owe, you’re creating additional debt. If you are currently struggling to pay your monthly payments, this could increase your financial burden. Two of the main advantages of refinancing your cash-back loan are improved loan terms and additional cash. Improvements in loan terms. Similar to traditional refinancing, you will receive more favorable loan conditions through this method. However, even if it’s possible to lower the amount of your monthly payments but you’ll be extending the lifetime of the loan and increasing your overall cost. Cash in addition. You will receive money from a cash-back refinance which is particularly beneficial if you require cash for emergencies. However, this is a temporary solution that could lead to increased interest rates. Refinancing your auto with cash back is a good idea if you experienced a financial emergency and need money or need to adjust your current loan to fit better with your needs. How much can I get with a cash-back loan? The amount that you can get, and consequently the amount of cash you will receive will depend on a few factors. The lender. Some lenders do not provide a cash-back option because of the risk. Value of the vehicle. The value of your car determines the amount of money your lender will offer you. Your credit history. Similar to most financial conditions, the credit score as well as history serve as the core measure for whether your loan will be approved. The better your credit score, the more favorable terms you can expect to get. Cash-back refinancing risk Before taking the plunge with a cash-back auto refinance, it is essential to take into consideration all the risks associated with it. Being upside down on a loan. It is more likely that you will become upside down or underwater with your loan. When the value of your car decreases your loan-to-value ratio rises. the chance of becoming underwater — owing more than the vehicle is worth. Incurring more debt. In fact, borrowing more than you owe will add more debt on your plate. Possibility of repossession. If you’re struggling to keep up with the monthly payment, extending your loan may just not suffice to solve deeper financial problems. This could mean your vehicle is taken if you fail to pay. There are a few lenders to choose from. Some lenders do not provide this kind of financing so you may have a limited number of options to choose from when you are looking around. The bottom line is that cash-back refinancing could be a viable alternative if you’re trying to score more favorable terms on your auto loan or if you have an urgent need for cash. The first step to consider this type of refinance to determine the present value of your car. This will help determine how much money an lender could be willing to give you. But remember, there are risks involved in a cash-back refinance. You incur more debt by refinancing the auto loan in excess of what is due and you risk becoming upside-down on the loan and vice versa. Learn more
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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the ways and pitfalls of borrowing money to buy a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain the confidence to manage their finances through providing precise, well-studied information that breaks down otherwise complex subjects into bite-sized pieces.
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