One option for auto loan refinancing is called cashback refinancing. Cash back refinancing is similar to traditional loan refinancing because you apply for a new loan that provides you with more favorable terms for repaying your loan. You will also receive a lump sum of cash as part of the refinancing process. Your current equity will determine your cashback amount.
When people need money urgently, they consider a cashback refinancing loan. This kind of loan isn’t risk-free, so it’s essential to understand what it is and when it should be considered.
What Is Cash Back Refinancing?
Cash-back automobile loans allow you to refinance your car for more than you currently owe on the vehicle. The amount above the amount you owe is provided to you as cash. Usually, people facing an emergency where they need extra money will consider this kind of loan.
During this process, the value of your car is converted to cash that you can use for other things. So, you will likely get new terms for the car financing and walk away from the process with additional cash in your pocket. You borrow an amount above what your car is worth to create the lump sum you walk away with, but not all lenders will allow you to refinance with a cashback loan.
Considerations Before Refinancing with a Cash Back Loan
Cashback refinancing can save you money, but the option also has drawbacks. Those drawbacks include the following:
- Limited options: Not all auto lenders allow cashback refinancing, so you may only have a few lenders available when choosing a financial institution. Some lenders may also have terms that limit how easily you can refinance with a cashback loan.
- You could become upside down: You must have equity in your vehicle for cashback refinancing. Some lenders allow you to take out enough cash to equal 100% of the car’s value. The car continues to depreciate, so these loans can cause you to owe more than the car is worth, known as being upside down on a loan.
- Repossession risk could increase: If taking advantage of cashback refinancing lengthens the repayment turn or increases your monthly payment, you may find it difficult to continue making the payments. If you default on this loan, your car could be repossessed.
Cashback refinancing can sound great, especially when you’re financially bound. However, you should consider all the transaction’s pros and cons before committing to this refinancing option. If you should have any questions, contact the experts at FinleyFi solutions.