What is automatic cash-back refinancing and how does it work?
Auto loan refinancing with cash back is like traditional refinancing in the sense that you benefit from new, more favorable conditions to replace your current loan. But, along with this, you will also receive a cash lump sum. The amount you receive depends on the equity in your vehicle.
Drivers can go this route if they urgently need cash for an emergency, but this choice carries the risk of increasing debt.
What is automatic cash-back refinancing?
A cash back auto loan refinance allows you to adjust your current loan and finance more than you owe, by receiving that extra amount in cash. It is most often used by those who need extra cash.
The process takes the value of your vehicle and converts it into cash you can walk away with. This means that while you’re refinancing your current loan to new terms, you’ll get extra cash in the form of cash by borrowing more than the car’s actual value. Not all lenders offer this service, and some drivers may lose their vehicle altogether due to the increased possibility of becoming Upside down.
How to apply for automatic cash-back refinancing
The automatic refinance with cashback application process is similar to what you would do for a traditional refinance. It just requires paperwork and research. After determining the value of your vehicle – through outlets such as Kelley Blue Book – you will have an idea of the amount of equity in the vehicle. This number will indicate how much money you can potentially receive.
Finding a lender that offers automatic cashback refinancing will take a bit more work. Not all lenders offer this service. After researching different lenders, compare terms and decide which option is best for you. Pay close attention to the amount of money you will receive. After loan application and approval, you will walk away with new loan terms and extra money.
When is automatic cashback refinancing a good idea?
Determining whether automatic refinancing with cash back is a choice that could lead to more financial problems requires thinking about your spending habits. Because this choice means borrowing more money than you already owe, you accumulate more debt. If you’re currently struggling with your monthly payment, it could make your financial situation worse.
The two main benefits of cash back refinancing are better loan terms and extra cash.
- Improved loan conditions. Just like with traditional refinancing, you will benefit from more favorable loan terms through this process. But even if your monthly payment goes down, you’ll only be extending the life of your loan and increasing the cost.
- Additional money. You will receive cash, which can be especially useful if you need extra cash in an emergency. But this is a short-term fix that could lead to higher interest rates.
Automatic cashback refinancing is a good idea if you’ve experienced a financial emergency and need the cash, or if you need to adjust your current loan to better suit your lifestyle.
How much can I borrow with a cashback loan?
The amount you can borrow, and therefore the amount of money you will receive, depends on a few factors.
- The lender. Not all lenders offer a repayment option 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 history serve as the basic measure of whether your loan will be approved. The better your credit, the more advantageous conditions you will benefit from.
Cash-back refinancing risks
Before deciding to go ahead with automatic refinancing with cash back, it is important to consider the risks that come with it.
- Go upside down on loan. You are more likely to become upside down or underwater on your loan. As the value of the car depreciates, your loan-to-value ratio increases the likelihood of being underwater – owing more than the value of the vehicle.
- Go into more debt. Borrowing more than you owe piles even more debt on your plate.
- Risk of takeover. If you’re struggling to meet your monthly payments, extending your loan may not be enough to solve deeper financial problems. It could mean that your vehicle is taken if you don’t pay.
- Few lenders to choose from. Not all lenders offer this type of financing, so you may have very few options to choose from when shopping around.
The bottom line
Cash refinancing can be a stopgap for drivers who are in desperate need of cash, but the new loan could lead to other problems later. Be aware that this refinance option can leave you in a precarious financial situation if you fall behind on your new loan payments.