Do You Get Money Back When You Refinance a Car?

Refinancing a car loan can offer various financial advantages, such as securing a lower interest rate or reducing monthly payments. Beyond these common benefits, some refinancing options allow borrowers to access a portion of their vehicle’s value in cash. This provides a lump sum, leveraging the vehicle as a financial asset.

Cash-Out Auto Refinancing Explained

Cash-out auto refinancing replaces an existing car loan with a new, larger one. The new loan amount exceeds the original balance, with the difference provided directly to the borrower as cash. This process allows vehicle owners to convert a portion of their car’s equity into liquid funds.

Unlike a standard auto refinance, cash-out refinancing includes an additional cash component. The vehicle acts as collateral for this new, larger loan, enabling the borrower to access funds previously tied up in the car’s value. This mechanism allows individuals to “get money back” from their car by borrowing against accumulated equity.

How Cash-Out Refinancing Funds are Disbursed

Once a cash-out auto refinance loan is approved and the original loan satisfied, surplus funds are released to the borrower. Common methods for receiving these funds include direct deposit into a bank account or a physical check. A wire transfer might also be an option.

The amount disbursed represents the difference between the new loan amount and the sum required to pay off the prior loan, after accounting for fees. For example, if a new loan is $15,000 and the old loan payoff plus fees totals $12,000, the borrower receives $3,000 in cash.

Key Factors for Cash-Out Eligibility

A primary consideration for cash-out auto refinancing is the vehicle’s equity, which represents the difference between its current market value and the outstanding loan balance. Positive equity is generally required. Lenders assess this through the loan-to-value (LTV) ratio, calculated by dividing the loan amount by the vehicle’s value. Many lenders prefer an LTV of 100% or less, though some may approve loans up to 120-130% depending on other criteria.

A strong credit score significantly influences approval chances and the interest rate offered. Lenders typically look for good to excellent credit histories, with scores often above 670. Your income and debt-to-income (DTI) ratio also play a role. The DTI ratio is calculated by dividing total monthly debt payments by gross monthly income, and generally, a DTI below 43-50% is preferred.

The vehicle’s characteristics, including its age and mileage, are also taken into account. Lenders often impose limits, such as restrictions for vehicles older than 10 years or with very high mileage. Additionally, a history of consistent, on-time payments on the current auto loan improves eligibility.

Evaluating the Financial Impact

Taking cash out during an auto refinance increases the loan principal, generally resulting in higher monthly payments. To keep payments manageable, the loan term might be extended, which can also impact the overall cost.

A larger principal amount, especially combined with a longer repayment term, means more interest will accrue over the loan’s life. This can significantly increase the total amount of interest paid compared to the original loan or a simple refinance. Borrowers should calculate these costs.

Borrowing against vehicle equity also reduces the borrower’s ownership stake. This can lead to being “upside down” or having negative equity, where the outstanding loan balance exceeds the car’s market value. If selling or trading the vehicle in this position, the borrower typically pays the difference. Increasing the loan amount also increases the risk of repossession if future payments cannot be met, as the vehicle remains collateral.