Refinancing a car can be a very smart thing to do. It can generate extra money, raise one’s credit score, and get the interest rate on the loan lowered. The following will explain the benefits of auto refinance cash out as well as the drawbacks to it.
Pittsfield, MA -- (SBWIRE) -- 12/20/2012 -- When a person decides he wishes to do cash out auto refinance, he must look into exactly what this means and what the parameters are for a successful refinance. First, a refinance is a paying off of the original auto loan and drawing up of an entirely new one, usually with a different lender. The reasons one might do this include obtaining a lower interest rate on the loan or a longer time period to repay it. If one’s credit standing has improved since the purchase of the vehicle, he may want to refinance it. When a cash out is part of the refinance loan, it gives one up to $5,000 in “free” money. However, there are a few rules involved with cashing out, and they are 1) that there is equity in the automobile; 2) one must have a good credit score; and 3) one’s situation.
One’s financial position means a great deal when considering auto refinance cash out. Most lenders will say not to do it if one cannot lower the interest rate on the loan by at least 2 full points. For instance, if one is currently paying 7.5% interest, he should find a refinance that offers him at least a 5.5% rate in order to make it worth doing. Remember, too, that if one’s credit rating has improved since buying the automobile, the interest rate on the new, refinanced loan should be considerably lower than that of the original loan. A higher credit score equals a lower loan interest rate, which saves an individual some money in the long run.
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Remember that one’s credit score must be good, there must be equity in the automobile, and one’s financial situation must merit doing the refinance before processing the application for it. If one does not meet all three criteria, it may not be possible to do the cash out auto refinance. However, if an individual does meet all three requirements, he may garner a bit of extra cash by doing the cash out. That cash can be applied to debt repayment, getting a jump on the coming season’s oil costs, or to purchase gifts for the holidays or birthdays. It is simply part of the loan refinance and is not addressed separately from the entire loan.
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