Refinancing a car loan with cash back is like traditional refinancing in the sense that you receive new, more favorable terms to replace your current loan. But, with that, you will also receive a lump sum. The amount you receive depends on the equity that exists in your vehicle.
Drivers can follow this path if they urgently need money for an emergency, but this option comes with the risk of increasing debt.
What is automatic refinancing with cash back?
An automatic loan refinancing with cash back allows you to adjust your current loan and finance more than you owe by receiving this extra cash amount. It is usually used by those who need extra money.
The process takes the value of your vehicle and converts it into cash with which you can leave. This means that while refinancing your current loan for new terms, you will receive extra cash in the form of borrowing more than the actual value of the car. Not all lenders offer this service and some drivers may lose their vehicle altogether due to the increased likelihood of becoming mess.
How to apply for auto refinance with cash back
The process for applying for automatic refinancing with cash back is similar to what you would do for traditional refinancing. It just requires bureaucracy and research. Once you have determined the value of your vehicle – through stores such as the Kelley Blue Book – you will have an idea of the amount of equity in the vehicle. This number will tell you how much cash you can receive.
Finding a lender that offers automatic refinancing with cash back will take a little more work. Not all lenders offer this service. After researching different lenders, compare the terms and determine which option is best for you. Pay close attention to the amount of money you will receive. After applying for and approving the loan you will leave with new loan terms and extra money.
When is it a good idea to refinance automatically with cash?
Determining whether automatic cash refinancing is an option that could lead to more financial problems takes into account your spending habits. Because this option means borrowing more money than you already owe, you are creating more debt. If you are currently having difficulty with your monthly payment, this could worsen your financial situation.
The two main benefits of cash back refinancing are improved loan terms and extra cash.
- Improved loan terms. As with traditional refinancing, you will receive more favorable loan terms through this process. But even if your monthly payment is reduced, you will only extend the life of your loan and increase the cost.
- Extra cash. You will receive money, which can be especially useful if you need extra cash for an emergency. But this is a short-term solution that could lead to higher interest rates.
Automatic refinancing with cash back is a good idea if you are in financial emergency and need money or need to adjust your current loan to better fit your lifestyle.
How much can I borrow through a cash back loan?
The amount you can borrow, and therefore the amount of cash you will receive, depends on a number of factors.
- The lender. Not all lenders offer the option of cash back due to the increased risk.
- Vehicle Value. The value of your vehicle determines the amount of money your lender will give you.
- Your credit history. As with most financial circumstances, your credit score and background serve as the basic measure of whether your loan will be approved. The better your credit, the more favorable terms you will receive.
Cash return refinancing risks
Before deciding to proceed with automatic refinancing with cash back, it is important to consider the risks involved.
- It goes upside down on loan. You are more likely to become upside down or underwater on your loan. As the value of the car is underestimated, the loan-to-value ratio increases the likelihood of you being under water – due to more than the value of the vehicle.
- Creating more debt. Borrowing more than you owe will make your debt even heavier.
- Risk of recovery. If you are having difficulty keeping up with your monthly payments, extending your loan may not be enough to fix deeper financial problems. This may mean that your vehicle will be picked up if you do not pay.
- Few lenders to choose from. Not all lenders offer this type of financing, so you may be stuck with very few options to choose from when shopping.
The bottom line
Cash refinancing may be an intermediate gap for drivers in desperate need of money, but the new loan could lead to more problems along the way. Beware that this refinancing option can leave you in precarious financial position if you delay payments on your new loan.