Cash-Out Auto Refinance: What It Is & When It Makes Sense

Cash-out auto refinancing lets you get cash out of your car’s value by replacing your current auto loan with a new loan. The new loan’s balance is based on the vehicle’s value. You get to pocket the difference between the loans and use that money to pay other expenses.

Cash-out auto refinancing isn’t free money. It can be highly risky. One risk is that you’re taking on additional debt, which you’ll have to pay back eventually. Another risk is that cars tend to depreciate over time, so using a cash-out refinance may result in you owing more money than your car is worth (this is called being “underwater” on a loan).

This guide will cover everything you need to know about cash-out auto refinancing and help you decide if it’s right for you.

On this page:

• How cash-out auto refinancing works
• Pros & cons of cash-out auto refinancing
• Cash-out auto refinance companies
• Alternatives to consider

How cash-out auto refinancing works

Cash-out auto refinancing lets you get cash based on the equity you have in your car. You can pocket the money you receive or use it for other expenses.

To do a cash-out auto refinance, you take out a new auto loan and use it to pay the full balance of your old loan. The money that’s leftover is yours to use as you see fit.

Typically, the amount that you can borrow with a cash-out refinance is based on the equity you’ve built in your car. Your equity is equal to the difference in the car’s value and the remaining balance on your loan.

For example, if your car is worth $10,000 and your auto loan balance is $6,000, you have $4,000 in equity. If you find a lender willing to offer 80% of your vehicle’s value for a cash-out refinance, you can borrow $8,000, using $6,000 to repay the existing loan amount. That frees up $2,000 to use toward other expenses.

Some lenders might let you borrow more than the car is worth, but you’ll be immediately underwater on the new loan. However, sometimes you need cash desperately, and this is one way to get money.

Like with your old loan, you’ll get a monthly bill from your new lender and need to make a minimum payment. The good news is that your car acts as collateral for the loan, which means you might be able to secure a lower interest rate than a personal loan or another unsecured loan would offer.

The danger is that your lender can repossess the vehicle if you stop making monthly payments, so a cash-out refinance loan puts your car at risk.

Pros & cons of cash-out auto refinancing

Pros

• Secured loans usually have lower interest rates than other types of loans

• Extending your auto loan term can reduce monthly payments

• You can cover emergency expenses or pay off high-interest debt

Cons

• Cash-out refinancing adds to your debt, which you still must repay

• You risk going underwater on your car loan

• Your car is at risk if you miss loan payments

Cash-out auto refinance companies

There are several companies that offer cash-out auto refinancing.

OneMain Financial

OneMain Financial offers cash-out auto refinancing with no prepayment penalties and fixed interest rates. That means that you don’t have to worry about your monthly payments changing over the life of the loan and you have the flexibility to repay the loan early if you’re able.

You can fill out a prequalification form to get offers from OneMain Financial. You’ll also get a call from a loan specialist who will go over the details of your loan offers and collect additional information about your vehicle to confirm your eligibility.

To learn more about OneMain Financial, click here.

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Auto Credit Express

Auto Credit Express specializes in auto loans. The company posts a list of requirements to qualify for its cash-out refinance loan.

• You must have at least two years left on your current loan
• You must owe at least $7,500 on your vehicle
• Your vehicle must be less than five years old
• Your vehicle must have less than 75,000 miles on it

Auto Credit Express lets you extend your original loan term out to 48 or 60 months, which can reduce your monthly payment. Just remember that longer-term loans tend to cost more than short-term loans in the end, due to interest.

To learn more about Auto Credit Express, click here.

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RoadLoans

RoadLoans has cash-out auto refinancing deals that that can reduce your loan’s interest rate or extend its term to reduce your monthly payment. The company accepts applications from people with lower credit scores, making it a good choice if you struggle to qualify with other lenders.

RoadLoans does not refinance cars for people who have loans with Santander Consumer USA or Chrysler Capital.

To learn more about RoadLoans, click here.

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Alternatives to consider

If you don’t like the risks of cash-out auto refinancing or simply want to explore other options, these alternatives are worth considering.

Traditional auto loan refinancing

If your goal is to reduce your monthly payment or your interest rate, you could turn to traditional auto loan refinancing. Instead of putting money in your pocket and increasing your debt, traditional refinancing replaces your existing loan with a new one that is better for you.

Check out our list of the best auto loan refinance companies.

Home equity loans

If you own your home and need money in an emergency, a home equity loan can give you a large, lump sum of cash based on the equity you’ve built in your home.

Unlike cars, homes do not tend to be depreciating assets, reducing the risk that you’ll go underwater on the loan. Homes also tend to be far more expensive than cars, making it easier to use a home equity loan for large or long-term borrowing.

Check out our list of the best home equity loans.

Home equity lines of credit (HELOC)

A home equity line of credit (HELOC), like a home equity loan, lets you get cash out of the equity you’ve built in your home. Unlike a standard home equity loan, a HELOC lets you turn your home equity into a consistent source of cash, much like a credit card.

You’ll get a credit limit when you open the HELOC. If you need to borrow money, you can withdraw some cash. As you repay the HELOC, you can continue to borrow from it as needed. If you don’t need any money, you can leave the HELOC unused and won’t have to pay a monthly bill.

HELOCs are best for people who need flexibility because you can borrow from a HELOC multiple times over the long-term.

Check out our list of the best HELOCs.

Personal loan

Personal loans are typically unsecured loans that you can use for any purpose. Many banks and lenders offer personal loans, and you don’t have to put your car or home at risk when you borrow the money.

The downside of not offering collateral is that you typically have to pay a higher interest rate on a personal loan. They also usually require higher credit scores and have lower loan maximums.

Check out our list of the best personal loans.