Cash Out Auto Refinance.
Is cash out Auto refinance really a good idea? Is it a step worth taking considering your present
situation? Well, I will provide answers to all those questions here in this article.
The whole concept of cash out Auto Refinance is pretty simple. It is under the normal car loan refinance
but an upgraded type or a combination of two loans. Get it right now.
Cash out Auto refinance simply means taking a new loan to cover up for your current car loan, with an
extra cash on it.
In cash out Auto refinance, the new loan amount must be greater than your current loan balance. Let
me give you an example.
Let us say, you acquired a car on a loan, and the car now worths $20,000. We assume you have paid up
your current loan to remain a balance of $15,000. The difference between your car value and your loan
balance is called the equity.
Cash out Auto refinance has to do with borrowing a new loan which includes the same amount as your
equity and your current loan balance. So, in this case, the amount for Car Loan Refinance is $15,000
while the amount for cash out Auto refinance is ($15,000 + $5,000) $20,000.
However, you can decide to borrow less than your car equity in Car Loan refinance, but you can not
borrow more than the equity on the car.
After paying off your existing car loan of $15,000, the balance of $5,000 is kept in your pocket to take
care of other needs, but must be repaid along with the Refinance Loan.
In summary, your equity determines how much cash out Auto refinance loan you can apply for.
Before thinking of applying for a cash out refinance loan, let us see why you should and should not even
think of doing so.
Also, there are certain things you should put into consideration. If you don't think of these factors, you
might end up making a wrong decision about your Cash out Auto refinance.
Have it in mind that if your car loan has a greater market value compared to the outstanding loan
amount, then you will have some extra cash with the new loan.
Why should I do Cash Out Auto refinance
Now ask yourself this question, in case you want to do Cash out Auto refinance, why should you go
ahead? This is a very difficult question as you might find it very hard to answer.
So, I will shed more light on the topic, and you will see why going for Cash out Auto refinance is a very
good idea.
1. It helps in cushioning the effect of emergencies.
Emergencies are things we don’t even plan for. They happen all of a sudden. Cash out Auto refinance
will help you by providing some extra cash to help take care of the emergency.
They are unavoidable, but they can be managed effectively. Rather than begging for funds, applying for
a cash out Auto refinance might just be a good idea.
The money can be used to pay for surgeries, emergency travels and the likes.
2. Lower Interest Rates
In the conventional car loan refinancing, it is a great move to refinance if you find out that a new loan is
interest is lower than that of your existing loan.
This helps you save more money. You can use this money for other things rather than using it to pay off
debts.
You can also attract loans with lower Annual Percentage Rate. (APR) if you already have an improved
credit score. It is a good option to refinance here.
Basically, why you need cash out Auto refinance is to help you with some extra cash. Apart from
emergencies, you could use this extra cash to setup a business which will bring forth sustainable returns
occasionally.
You can use this returns to start paying back your refinance loan.
But wait, don't jump into it yet, there are still things you have to know before you think of doing Cash
Out Refinance Loan at all.
Why should I not do Cash Out Auto refinance.
After reading this, if you still feel encouraged to apply for a Cash out Auto refinance loan, you can go
ahead. But take note of these words.
For these reasons, you should not bother about Cash out Auto refinance.
1. Greater Cash on Loans means greater interest at the end of the day. You are borrowing an extra cash
on top of a loan, remember the two will be added up to give your loan amount.
You will be required to pay the loan amount back in full including the interest.
To clarify, you are just increasing your debt. The amount you will have to repay will just be piling up.
Also, if you are having problems with repaying your current loan, do not bother to go for Cash out Auto
refinance. It is not really a good option here.
You might just be running into a bigger debt. Why borrow more when you can't even pay less? Doesn’t
make sense here. You can decide to refinance but do not apply for cash out Auto refinance. It could be
dangerous.
Read Also: Car Loan Refinance Calculator
Also, if you feel you do not need the extra cash which was initially supposed to be against your equity.
Kindly go for the conventional car loan refinance.
Cash out Auto refinance is only necessary when more cash is needed for immediate use.
2. It might not be suitable for your monthly budget. When you apply for a new loan which is greater
than the previous one, all terms are liable to change.
The loan term and Annual Percentage Rate might not be the same as that of the new one.
For example, your monthly returns (excluding interest), might increase and thereby affecting you
financially. Your pocket isn't used to this system yet.
Therefore, it will be of great benefit if you took a normal car loan refinance or just continue with your
existing loan.
Most times, you do not find interest rates which are lower than that of your current loan on Cash out
Auto refinance.
This is because you need high credit score to qualify for refinance loans with very low credit scores.
This kind of loans are kept aside for borrowers who truly deserve it. (Those with very high credit score).
Things to consider before doing Cash Out Auto Refinance
There are certain things you have to consider before taking a cash out Auto Refinance Loan. After
putting these things into consideration, you will find out if this refinance system is ideal for you.
1. The Age and Value of your Vehicle.
We all know that a vehicle depreciates in value as its age increases. That is, your car's age should still be
very low before you go for Cash out. Auto refinance.
Before refinancing, ensure your car is still very new and still has a very high market value.
Note that, the higher the value or worth of your car, the better your chances of receiving nice loans.
In most cases, the lending body will have to conduct personal checks and inspection on your vehicle to
determine its value. This is usually the first step.
2. Your outstanding loan amount
The lesser your outstanding loan amount, the better chances you have of getting good cash out
refinance loan. The equity is gotten from the difference of two major parameters ( Car book Value –
Outstanding Loan Amount).
So the extra cash on the Cash out Auto refinance loan you will receive is usually as high as the equity on
your car.
In simple terms, the greater your car equity, the greater Cash out Auto refinance loan you will get.
3. Your Credit Score.
Credit score is an important factor for approving loans. Higher credit score applicants get loans with
better terms than low score applicants.
Same applies to Cash out Auto refinance. Have a great credit score the go ahead to apply for a loan. You
will be given a greater priority.
4. Your Monthly Income.
Write out what you earn monthly and see if you will be comfortable paying the new loan. If you will,
then you can go ahead and take the loan.
It wouldn't be a good idea to take a loan if you won't be comfortable with the repayment conditions.
A deeper Insight into Cash Out Auto Refinance
Car Loan refinance is meant to save money right? But is cash out Auto refinance really going to save you
money? Let's see.
If you look at this closely, Cash out Auto refinance is not saving your money, rather it is increasing your
debt.
This is an hidden fact. A cash out Auto refinance loan is a combination of a normal car loan and a
personal loan.
Taking a Cash out Auto refinance loan if there is no significant purpose for the money could be very
risky, as you will have to repay the loan and the accrued interest in due time.
Although, if this extra cash is needed for emergency reasons, it might not even seen as an extra cash
because there will surely be a way to pay back the loan on time.
Now, you should be able to decide if Cash Out Auto refinance is best for you, and proceed to the next
step.
