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

Cash-out auto refinancing involves replacing your car loan with a new, larger loan and pocketing the difference in cash. This type of refinance tends to be an option if you have significant equity in your car. 

The money you get from a cash-out auto refinance isn’t free, and this move can be risky. It involves taking on more debt, which you must repay. Cars also typically depreciate over time, so you may end up owing more money than your car is worth (aka being “underwater” on your loan).

Still, a cash-out refinance could make sense in certain cases. Here’s what to know about cash-out auto refinancing and whether it’s right for you.

Cash-out auto refinance companies

Several cash-out refinancing providers stand out. We’ve reviewed three options to consider as you explore this financing option. 

Lender	Best for
OneMain Financial	Fixed rates
Auto Credit Express	Customer service
Open Road Lending	Specialization

OneMain Financial – Best for fixed rates

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• Transparent fixed rates without prepayment penalties
• Easy online application and quick disbursement of funds
• Personalized loan options with flexible repayment terms

OneMain Financial offers fixed interest rates, which can eliminate the guesswork in repayments. We like its easy-to-navigate online application process and that it allows early repayment without penalties.

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.

Auto Credit Express – Best for customer service

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• Specializes in auto loans
• Extend loan term to 48 or 60 months
• Resources for bad-credit borrowers

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

• At least two years left on your current loan
• Owe at least $7,500 on your vehicle
• Vehicle must be less than five years old and have less than 75,000 miles on it

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

Open Road Lending: Best for specialization in refinancing

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• Specializes exclusively in auto refinance
• Offers a range of auto refinance loan products
• Resourceful and informative website

Open Road Lending carves out a niche in the auto market with its exclusive focus on refinancing. It has a variety of loan products tailored to meet diverse borrower needs.

More than just a lender, it extends its role to being an informative companion for borrowers. Its resource-rich website hosts informative articles and tools, enabling prospective borrowers to make informed choices.

How cash-out auto refinancing works

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

Typically, the amount you can borrow with a cash-out refinance is based on the equity you’ve built in your car. Your equity is the difference in the car’s current value and the remaining balance on your loan. Some lenders might let you borrow more than the car is worth, but you’ll be immediately underwater on the new loan.

As with your old loan, you’ll get a monthly bill from your new lender. Your car acts as collateral for the loan, meaning you could secure a lower interest rate than a personal loan or another unsecured loan might offer. But because your car serves as collateral, your lender can repossess it if you stop making payments.

Cash-out auto refinance examples

Here are two examples of potential cash-out auto refinance offers. Both assume your lender will offer 80% of your vehicle’s value. 

Loan 1:

• Car value: $10,000
• Old loan balance: $6,000
• Total equity: $4,000
• New loan amount (80% of value): $8,000

In this case, the new loan leaves you with $2,000 cash to use toward other expenses after repaying your old loan. 

Loan 2:

• Car value: $14,000
• Old loan balance: $7,000
• Total equity: $7,000
• New loan amount (80% of value): $11,200

This new loan would leave you with $4,200 in cash after repaying your old loan. 

Pros & cons of cash-out auto refinancing

Cash-out auto refinancing can be a helpful way to access cash if a financial emergency crops up. But it’s important to consider the benefits and drawbacks of this option. Here’s a look at the pros and cons:

Pros

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

• Extending your auto loan term can reduce monthly payments

• You can use the cash to 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

Is a cash-out auto refinance right for you?

Here are three situations where you could consider a cash-out refinance and three when it might not be wise. 

Consider a cash-out auto refi if…	Reconsider a cash-out auto refi if…
✅ You need cash to repay high-interest debt	❌ You’ll be underwater on your loan
✅ You can access a lower interest rate	❌ Your interest rate will increase
✅ You want to potentially reduce your monthly payment	❌ You can’t afford the new estimated payment

You need cash to repay high-interest debt

If you have high-interest debt that needs repayment and sufficient equity in your car, a cash-out refinance could help you access cash. Many auto loans come with lower rates than credit cards, so this strategy could help if you’re trying to get out of debt.  

You can access a lower interest rate

Interest rates are always changing. If they’re lower than when you borrowed your old loan, a cash-out refinance may help reduce your rate and give you the money you need for other expenses. 

You want to potentially reduce your monthly payment

Extending your loan term with a cash-out refinance could result in a lower monthly payment, but this isn’t always the case if you’re taking a larger loan. Just remember that you’ll end up with a larger debt if you increase your loan amount, and your interest costs could be higher over time. 

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You’ll be underwater on your loan

Exploring alternatives for accessing cash could make sense if you’ll be underwater on your loan after a cash-out auto refinance. Being underwater on your car loan comes with its own set of risks. For instance, your insurer will only pay out the current value of your vehicle if you’re in an accident and your car is totaled. You’ll need to repay your lender the difference if your loan balance is larger than the insurance payout. 

Your interest rate will increase

If interest rates have risen since you took out your old loan, it might make sense to consider alternatives to a cash-out refinance if you need money. A higher rate could mean much higher interest costs over your loan term. 

You can’t afford the new estimated payment

If you can’t afford your current monthly car payment, you might consider a cash-out refinance as a way to access extra money and reduce your monthly payment. But it’s crucial to understand how much your new monthly payment will be before moving forward. Your car could be at risk if the monthly payment on your new loan is out of reach, too. 

Our expert’s advice

Chloe Moore

CFP®

Cash-out auto refinancing can be risky. It may be beneficial in situations where you have significant equity and can get more favorable loan terms, such as a lower interest rate. Keep in mind that you’re often extending the term of the loan, so you could end up paying more interest over time. If you’re considering a cash-out auto refinance, I recommend weighing the pros and cons, understanding how the new loan terms will affect your remaining equity and payments, and ensuring you’re in a position to make on-time payments on the new loan so you don’t risk losing your car.

Alternatives to consider

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

Method	Best for
Cash-out auto refinance	Paying off high-interest debt
Traditional auto loan refinance	Lowering your monthly payment or interest rate
Home equity loan	Low-rate financing
HELOC	Low-rate, flexible financing
Personal loan	Fast access to funds

Traditional auto loan refinancing

If you want 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 loan with a new one with more favorable terms or a lower rate.

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

Home equity loans

If you own your home and need cash to cover a large expense, a home equity loan can give you a lump sum based on the equity you’ve built in your home. Home equity loans tend to offer low rates, and you can often borrow up to 80% of your home’s equity. For these reasons, they’re good for large expenses you plan to pay down over time. 

Check out our list of the best home equity loans.

Home equity lines of credit (HELOC)

A 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.

HELOCs are structured as lines of credit with specific limits lenders set. If you need cash, you can borrow against your HELOC up to your limit. You can then repay what you’ve borrowed and access that cash again down the line. Some lenders don’t require you to borrow against your HELOC at all, so you can leave it alone if you don’t need money.

HELOCs typically have low rates, so they’re a wise choice if you have significant equity and need the flexibility of a credit line.

Check out our list of the best HELOCs.

Personal loan

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

The downside of no collateral is that personal loans tend to come with higher rates, but often not as high as credit card rates. These loans also might require higher credit scores and have lower loan maximums. Many lenders disburse personal loans the same day you’re approved or within a couple of business days, making them a suitable option if you need quick cash.
 
Check out our list of the best personal loans.