Generally, when a person refinances his auto loan, it’s because he needs to lower his payment, because he’s upside down in his trade, or because he needs a little cash. By doing what’s called a “cash-out” refinance, he can get that money.
Pittsfield, MA -- (SBWIRE) -- 02/14/2013 -- Credit-yogi.com would like to give people some information about auto refinance with cash back, such as:
- Loan-to-Value
- Original Loan Pay-off
- Restrictions
- Additional Considerations
Figuring Loan-to-Value
With secured loans such as auto loans, the lender generally requires collateral. If the borrower defaults on the loan, the lender takes control of the collateral. In order to fully finance the auto loan, the loan cannot be more than the worth of the collateral. While some lenders finance up to 125% of a loan’s collateral worth, a refinance car loan with cash back is not allowed to exceed 80%-100% of the collateral’s worth.
Original Auto Loan Pay-off
When a car loan is refinanced, the new lender contacts the original lender and asks for a pay-off quote. Whatever the difference is between the pay-off amount and the value of the car is one’s auto refinance with cash back. There are fees that go with refinancing, such as processing costs and document tax. One can either use hos cash back for these, or he can pay them out-of-pocket. Either way, one is still getting the money
Limitations
Trucks, cars, and vans all loose value as they get older. As a rule, lenders don’t refinance vehicles older than 7 years. Also, loan terms are shorter on older cars, meaning higher payments for older vehicles. Although one may still be able to refinance a car loan with cash back, it may be more difficult if one’s debt-to-income ratio is greater than 50%. It may also be harder to do if one’s car or truck is older.
Other Factors to Consider
When a person takes out an auto refinance with cash back, if he falls behind on his payments, he may lose the vehicle. The amount one can borrow on a cash-back refinance loan is similar to the money one is borrowing for one’s other unsecured debts, such as credit cards. If one cannot make one’s charge card payments, one does not have his automobile repossessed. For this reason, many people don’t like to tie loans to their autos. However, secured loans have low fixed rates, so they’re a better bet than the variable rates on credit cards.
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