You might be able to cash out refinance your car if you’re in the right situation. A cash out refinance lets you tap into your auto equity and get a lump sum of cash in return for a larger loan balance. This could make sense for you if your credit score has improved since you took out your original loan and you can comfortably afford the new monthly payments. You also typically need to have a relatively newer vehicle in order to qualify, usually under 10 years old. Lenders typically look at the car’s current value and mileage as part of the loan application.
How Does Cash Out Refinancing Work?
Once you’re approved for a cash out refinance, you receive the cash out funds from your lender. It could be in a check or through direct deposit. Then you will start repaying the loan based on your loan agreement.
Yes, potentially your credit score could be impacted in a few ways by a cash out refinance. First, you’ll likely see a small dip because of the hard inquiry performed on your credit report as part of the application process. You may also see a dip in your score since your level of debt will rise-a larger loan means greater credit utilization and amounts owed. The exception would be if you use the cash out funds to pay off high interest revolving debt, like a credit card. Then you might actually see an improvement in your score since an installment loan is viewed more favorably.
What Credit Score Is Needed for a Cash Out Refinance?
Different lenders require different credit scores. But cash out refinance loans are typically reserved for borrowers with better credit. That’s because you’re asking for a higher loan amount, so the online payday loans Ohio lender wants to feel confident that you’ll repay the new balance in full.
How Long Does a Cash Out Refinance Take?
A cash out car refinance usually isn’t instantaneous. That’s because you’ll likely need to get your vehicle inspected to confirm its value.
How Soon Can I Cash Out Refinance?
There’s no time limit on when you can do a cash out auto refinance. The most important factor is how much equity you have in your car. As soon as you’ve made enough payments to earn some equity, you could apply to refinance. Alternatively, maybe you made a sizable down payment (giving you automatic equity) but your financial situation has changed since taking out the loan. Look at your loan balance compared to the vehicle’s current market value to find out if enough time has passed for a cash out refinance.
What Are the Pros and Cons of a Cash Out Refinance?
The primary benefit is that you can potentially borrow money at a lower cost with an auto loan compared to a high-interest personal loan or credit card. And you may be able to reduce the interest rate you’re paying on your current auto loan. A con would be that you could pay more interest over the life of the loan if you spread out the payments over a longer period of time. Additionally, you’ll use your car as collateral for the cash out funds, which does put you at risk of losing your car if you can’t repay the higher loan amount.
Is a Cash Out Refinance Taxable?
No, you don’t have to report the money from a cash out refinance as taxable income because it’s actually a loan. You have to repay the balance, along with interest. So even though it feels like you’re getting a lump sum payment, you’re still paying to borrow the money.