What Is a Car Mortgage and How Does Cash Out Refinance Work?

While the term “car mortgage” isn’t technically correct (mortgages specifically refer to real estate loans), it’s sometimes used colloquially to describe auto loans. A cash out car refinance works similarly to home refinancing but with your vehicle as collateral. The process involves:

1. Determining your vehicle’s current market value

2. Calculating your available equity (current value minus remaining loan balance)

3. Applying for a new loan that’s larger than your current balance

4. Using the difference between the new loan and your old balance as cash

For example, if your car is worth $20,000 and you owe $12,000 on your current loan, you might qualify for a cash out refinance that provides you with access to a portion of your $8,000 in equity.

When Should You Consider an Auto Loan Refinance?

Auto loan refinance, whether standard or cash out, may be worth exploring in several situations:

1. When interest rates have dropped significantly since you obtained your original loan

2. If your credit score has improved substantially, potentially qualifying you for better rates

3. When you need access to cash for major expenses like home repairs, medical bills, or education costs

4. If you want to consolidate high-interest debt with a potentially lower-rate auto loan

5. When your current monthly payment is too high and you need to extend your term

However, it’s important to evaluate whether extending your loan term will cost more in total interest, even if it provides short-term payment relief or access to cash.

Benefits and Drawbacks of Car Refinance with Cash Out Option

Car refinance with a cash out option offers several potential advantages:

• Access to immediate funds without applying for a separate loan

• Potentially lower interest rates compared to personal loans or credit cards

• Simplified debt management by consolidating multiple payments

• Possible improvement in loan terms (rate, monthly payment, or both)

However, this financial tool comes with notable drawbacks:

• Extending your loan term means more interest paid over time

• Increasing your loan amount puts you at higher risk of becoming “underwater” on your loan

• Using your vehicle as collateral means you could lose it if you default

• Some lenders charge higher rates for cash out refinancing

• Older vehicles may not qualify as lenders assess depreciation risks

How to Qualify for an Auto Equity Loan or Cash Out Refinance

Auto equity loans and cash out car refinance options have specific qualification requirements that typically include:

1. Vehicle equity - You must owe less on your current loan than your vehicle is worth

2. Credit score requirements - Most lenders require at least a 600-660 credit score, with better terms for higher scores

3. Income verification - Stable, documentable income to demonstrate repayment ability

4. Vehicle requirements - Typically must be under 10 years old with fewer than 100,000 miles

5. Loan-to-value ratio - Many lenders limit cash out to 100-125% of the vehicle’s value

Each lender sets their own specific requirements, so comparing multiple options is essential if you’re considering this financial move.

Comparing Cash Out Car Refinance Providers and Costs

When exploring cash out car refinance options, it’s important to compare multiple providers to find competitive rates and terms. Here’s how several major auto refinance lenders compare:

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Provider	Minimum Credit Score	APR Range	Cash Out Limits	Special Features
LightStream	660	5.99%-17.49%	Up to $50,000	No vehicle age/mileage restrictions
PenFed Credit Union	610	4.99%-24.49%	Up to 125% LTV	Membership required
Auto Credit Express	580	Varies by lender	Varies by lender	Specializes in lower credit options
myAutoloan	575	3.49%-24.99%	Up to 125% LTV	Compares multiple lenders
Caribou	640	3.49%-25.49%	Up to $55,000	Digital-first experience

Prices, rates, or cost estimates mentioned in this article are based on the latest available information but may change over time. Independent research is advised before making financial decisions.

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The total cost of a cash out car refinance includes not just the interest rate but also potential fees such as:

• Application fees ($0-$100)

• Title transfer fees (varies by state, typically $5-$150)

• Lien recording fees (approximately $15-$60)

• Prepayment penalties on your existing loan (if applicable)

The longer your loan term and the more equity you cash out, the higher your total interest costs will be over time.

Alternatives to Cash Out Car Refinance to Consider

Before proceeding with a cash out car refinance, consider these alternatives that might better suit your financial needs:

1. Personal loans - May offer competitive rates without using your vehicle as collateral

2. Home equity loans or HELOCs - Typically offer lower rates if you own property with equity

3. Credit union loans - Often provide member-friendly rates and terms

4. Standard auto refinance - If you don’t need cash but want better loan terms

5. 0% APR credit card offers - For short-term needs that can be repaid during promotional periods

Each alternative comes with its own qualification requirements, benefits, and potential drawbacks. The best choice depends on your specific financial situation, credit profile, and how quickly you need access to funds.

Understanding all your options helps ensure that a cash out car refinance truly represents the most advantageous financial move for your circumstances, rather than simply the most convenient path to accessing cash in the short term.