When You Refinance a Car Do You Get Money Back?

When you refinance a car, you replace your existing auto loan with a new one, often to secure different terms. While traditional refinancing adjusts loan conditions, “cash-out” refinancing offers an additional benefit. This process allows vehicle owners to access a portion of their car’s built-up equity as cash. It directly addresses whether you can receive funds when refinancing your car.

Understanding Cash-Out Auto Refinancing

Cash-out auto refinancing replaces your current car loan with a new, larger loan. This new loan covers your original loan’s remaining balance, plus an additional sum disbursed to you as cash. This process leverages your vehicle’s accumulated equity, which is the difference between its current market value and your outstanding loan amount. The new loan typically includes the original loan balance and an additional amount based on your available equity.

For example, if your vehicle is valued at $20,000 and your outstanding loan balance is $10,000, you have $10,000 in equity. Through a cash-out refinance, you might secure a new loan for $15,000. The new lender uses $10,000 to pay off your old loan, and the remaining $5,000 is given to you. This turns a portion of your vehicle’s value into liquid funds.

This refinancing differs from a standard auto refinance, where the new loan only covers the existing balance. The cash comes from the equity you have built in the vehicle, which grows as you make payments and if the car retains its value. Borrowers can use this lump sum for debt consolidation, unexpected expenses, or other financial needs.

Factors Influencing Your Cash-Out Refinance

Several factors influence a lender’s decision to approve a cash-out auto refinance and the amount of cash you can receive. Your vehicle’s equity is a primary consideration, representing the portion of the car’s value you own. A higher equity amount means more potential cash, as lenders allow borrowing up to a certain percentage of the car’s value, sometimes up to 100% or even higher, depending on their specific policies.

Your credit score and history also play a substantial role. Lenders assess your creditworthiness to determine eligibility, interest rates, and loan terms. A higher credit score generally leads to more favorable interest rates and a greater likelihood of approval. While applying for a new loan can result in a temporary, slight dip in your credit score due to a hard inquiry, this impact is typically minor and temporary. Lenders prefer borrowers with a history of responsible debt management.

Your income and debt-to-income (DTI) ratio are closely scrutinized to ensure your ability to repay the new, larger loan. Lenders evaluate your gross monthly income against your total monthly debt obligations to determine your DTI ratio. A lower DTI ratio indicates that a smaller portion of your income is allocated to debt payments, making you a less risky borrower. A stable income is usually expected.

The age and mileage of your vehicle are also important, as these factors directly affect the car’s appraised value and eligibility. Most lenders impose limits, such as requiring vehicles to be under 10 years old and have mileage below 125,000 to 150,000 miles. Older vehicles or those with very high mileage are viewed as higher risk due to potential mechanical issues and depreciation.

The Cash-Out Refinance Process

Initiating a cash-out auto refinance begins with the application submission. Borrowers can apply online, in person, or through a loan broker. This initial step often includes providing personal details and information about your vehicle and current loan. Many lenders offer pre-qualification, allowing you to see potential rates and terms without a hard inquiry on your credit report.

Once you choose a lender, you will proceed with a formal application requiring various documents. These commonly include proof of identity, such as a driver’s license, and proof of income, like recent pay stubs or tax returns. You will also provide vehicle information, including registration, title, and VIN, along with details about your current auto loan, such as the payoff amount and terms. Proof of residency and car insurance are generally required.

Following document submission, the lender reviews and approves your application. The lender assesses all provided information, including your credit history, income, and the vehicle’s value, to determine eligibility and finalize loan terms. Approval decisions are communicated within a few business days, though processing times can vary by lender. If approved, you will receive new loan documents outlining the interest rate, repayment schedule, and total loan amount.

Loan closing involves signing these new loan documents. After closing, the fund disbursement occurs. The “cash back” portion is then provided to you. This cash can be received via direct deposit or through a physical check within a few business days.

A final step is the payoff of your old loan. The new lender typically handles this directly, sending the payoff amount to your previous auto loan provider. Continue making payments on your old loan until you receive confirmation that it has been fully paid off, which can take one to two weeks on average. This ensures no late payments occur during the transition.