What cash-out auto refinancing is
Cash-out auto refinancing means replacing your current car loan with a new one for more than you still owe, and taking the difference in cash. If you owe $15,000 on your car and refinance for $18,000, you walk away with $3,000 in cash and a new loan for the full $18,000.
The lender pays off your old loan completely, then issues you a new loan secured by the same vehicle. You make monthly payments on the larger amount. The car itself is the collateral — if you stop paying, the lender can repossess it, just as your original lender could have.
This is different from a regular refinance, where you replace your loan with a new one for roughly the same amount, usually to lower your interest rate or change your loan term. With cash-out refinancing, you are borrowing additional money against your car's value.
Key Takeaways
- Cash-out refinancing lets you borrow money against your car's current market value, but you must owe less than that value for a lender to approve it.
- The interest rate on a cash-out refinance is typically higher than a regular refinance because you are borrowing more money and taking on more risk.
- Your monthly payment will increase because you are paying back a larger loan amount, even if the interest rate stays the same.
- If you cannot repay the loan, the lender can repossess your car — you lose both the vehicle and the cash you withdrew.
- Banks, credit unions, and online lenders all offer cash-out auto refinancing, and rates and terms vary significantly between them.
How lenders decide how much cash you can take out
A lender will only refinance you for an amount up to what your car is worth on the used market right now. They use tools like Kelley Blue Book or NADA Guides to estimate your vehicle's value, or they may require an inspection. If your car is worth $20,000 and you owe $15,000, the lender might refinance you for up to $20,000, giving you access to $5,000 in cash.
The exact amount depends on the lender's policy. Some will lend up to 100 percent of the car's value; others cap it at 90 or 95 percent. A few lenders will go higher if you have good credit or a strong income, but this is less common. The older your car or the more miles it has, the lower its value, which shrinks the cash available to you.
Your credit score matters too. A higher score usually means you can borrow closer to the car's full value. A lower score might mean the lender will only refinance you for 80 or 85 percent of value, leaving less cash on the table.
Interest rates and how they compare to regular refinancing
Cash-out refinancing almost always carries a higher interest rate than a regular refinance on the same car. Lenders charge more because you are borrowing a larger total amount, which means more risk for them. If you default, they have to repossess and sell a car that may be worth less than the loan balance — they take a loss.
The rate you receive depends on your credit score, the age and condition of the car, the lender you choose, and how much cash you are taking out relative to the car's value. Someone with a credit score above 700 might receive a rate between 5 and 8 percent, while someone with a score below 600 might see rates of 12 percent or higher. These are rough ranges; actual rates vary by lender and market conditions.
To compare, a regular refinance on the same car for the same person might be 1 to 3 percentage points lower. That difference adds up over the life of the loan. On a $20,000 loan over five years, the difference between 6 percent and 9 percent is roughly $1,500 in extra interest.
What happens to your monthly payment
Your monthly payment will go up because you are borrowing more money. Even if the interest rate stays exactly the same, a larger loan amount means a larger payment. If you refinance $15,000 at 6 percent over 60 months, your payment is roughly $290. If you refinance $18,000 at 6 percent over the same 60 months, your payment jumps to roughly $348.
You can lower the monthly payment by extending the loan term — refinancing over 72 or 84 months instead of 60. But this means paying interest for longer, so the total interest you pay over the life of the loan increases. A longer term makes the monthly payment more affordable but more expensive overall.
Before you refinance, calculate what your new payment will be and make sure it fits your budget. Many lenders have online calculators, or you can ask the lender directly for an estimate before you commit.
When cash-out refinancing makes sense
Cash-out refinancing can be useful if you need cash for an emergency and have no other way to get it, or if you have high-interest debt elsewhere and can refinance at a lower rate. For example, if you have $5,000 in credit card debt at 18 percent interest and can refinance your car to take out $5,000 at 7 percent, you might save money on interest even though your car payment goes up.
It also makes sense if your car's value has risen significantly since you bought it and you have built equity. If you paid $25,000 for a truck five years ago, still owe $12,000, and the truck is now worth $22,000, you have $10,000 in equity you could access.
Cash-out refinancing does not make sense if you are just looking for quick cash without a specific plan for it. The higher interest rate and longer repayment period mean you will pay more overall. If you are considering it mainly to fund spending, it is worth asking whether you can cut expenses or find another source of money instead.
The risks of borrowing against your car
The biggest risk is that your car is collateral for the loan. If you miss payments, the lender can repossess it. You lose the vehicle and still owe the remaining loan balance — you may even owe the difference between what the lender sells the car for and what you still owe, called a deficiency. You also lose the cash you took out, which is already spent.
Another risk is being underwater on the loan — owing more than the car is worth. If you refinance for $20,000 and the car is worth $20,000 today, but its value drops to $17,000 in a year, you now owe more than the car is worth. If you need to sell it or it is totaled in an accident, you will have to pay the difference out of pocket.
There is also the risk of overextending yourself. A larger monthly payment might be manageable now, but if your income drops or an unexpected expense comes up, you could fall behind. Before refinancing, think about whether you could still make the payment if your circumstances changed.
Where to look for cash-out auto refinancing
Banks, credit unions, and online lenders all offer cash-out auto refinancing. Credit unions often have lower rates than banks if you are a member, so start there if you belong to one. Online lenders like LendingClub, Upgrade, and Lightstream may offer competitive rates and faster approval, though rates vary widely based on credit score.
Get quotes from at least three lenders before deciding. Each lender will pull your credit report, which causes a small, temporary dip in your score, but multiple inquiries within a short window (usually 14 to 45 days, depending on the credit scoring model) count as a single inquiry. This means you can shop around without major damage to your score.
When you get a quote, ask for the annual percentage rate (APR), the loan term, the monthly payment, and the total interest you will pay over the life of the loan. These numbers let you compare apples to apples across lenders.
Frequently Asked Questions
Can I do a cash-out refinance if I still owe a lot on my car?
Only if your car is worth more than what you owe. If you owe $18,000 and the car is worth $16,000, no lender will refinance you for cash because you are already underwater. You would need to pay down the loan or wait for the car's value to rise before cash-out refinancing becomes an option.
What if I have bad credit?
You can still refinance, but your interest rate will be higher and the amount of cash available to you will be smaller. Some lenders specialize in bad-credit auto refinancing. Compare offers from multiple lenders, as rates vary widely. A credit union may offer better terms than a bank or online lender if you are a member.
How long does the refinancing process take?
Most lenders can approve and fund a cash-out refinance within three to seven business days if your process is straightforward. Online lenders are often faster than banks. The timeline depends on how quickly you submit documents and how busy the lender is. Ask the lender for an estimate when you explore.
Will refinancing hurt my credit score?
A hard inquiry from the lender will cause a small, temporary dip of a few points. Closing your old loan and opening a new one may also affect your score slightly. However, if you make on-time payments on the new loan, your score will recover and likely improve over time. The short-term dip is usually worth it if the new loan saves you money.
What if my car breaks down after I refinance?
You still owe the full loan amount even if the car is not running. Repairs are your responsibility. If the car is totaled in an accident, your insurance payout goes to the lender first to cover the loan balance. If the payout is less than what you owe, you owe the difference. Make sure you have adequate insurance coverage before refinancing.