You can do a cash out refinance on a car if the vehicle is worth meaningfully more than you still owe. A lender replaces your existing auto loan with a new, larger one, uses part of the new loan to pay off the old balance, and hands you the difference as cash. Because the loan is secured by the car, the rate is usually lower than a credit card or unsecured personal loan, but the balance, the payment, or the term generally goes up.
How the Transaction Works
Say you owe $12,000 on a car valued at $20,000. A lender might approve a new loan of $16,000. The first $12,000 pays off your existing loan, the old contract closes, and you keep the remaining $4,000. Your new loan agreement sets a fresh interest rate, monthly payment, and repayment term, and it replaces the old one entirely.
The new loan is secured debt. The lender places a lien on the vehicle, and if you stop paying, it can repossess the car. Since you now owe more than you did before, expect a higher monthly payment, a longer term, or both. Stretching the term to keep the payment manageable increases the total interest you pay over the life of the loan; the Consumer Financial Protection Bureau notes that longer loan terms can double total interest cost compared with shorter ones.1Consumer Financial Protection Bureau. Take Control of Your Auto Loan
Whether You Qualify
Equity in the Vehicle
The car has to be worth more than your payoff amount, with room to spare. If you bought it recently or put little money down, you probably haven’t built enough equity for a cash-out to make sense.
Loan-to-Value Limits
Lenders look at the loan amount as a percentage of the car’s value, called the loan-to-value ratio. Most cap LTV around 125%, so the total new loan cannot exceed 125% of what the car is currently worth. A lower LTV means better approval odds and a lower rate.
Age and Mileage of the Car
Common ceilings are 8 to 10 years old and 100,000 to 150,000 miles, though some lenders go further. Salvage titles, heavy modifications, or excessive wear make refinancing much harder.
Credit and Income
Minimum credit score requirements vary by lender. Some accept scores in the low 500s; others start at 600. The best pricing generally goes to borrowers at 690 and above. Lenders also check your debt-to-income ratio to make sure you can absorb the higher payment. A co-signer with strong credit can improve your terms if your score is on the low end.
Prepayment Penalty on Your Current Loan
Read your existing loan contract, or ask the lender directly, before you apply. A prepayment penalty on the old loan can eat into the benefit of refinancing. Some states prohibit these penalties on auto loans, so it’s worth checking your state’s rules too.
What You’ll Need and How the Steps Run
Having the paperwork ready keeps the process moving. Most lenders ask for:
- The vehicle identification number (VIN), current mileage, and the car’s year, make, model, and trim
- A payoff statement from your current lender showing the exact remaining balance, accrued interest, and per-day payoff amount
- Proof of income, such as recent pay stubs, tax returns, or W-2s; self-employed borrowers may need bank statements or profit-and-loss statements
- Proof of insurance with comprehensive and collision coverage
- A valid government-issued ID
Most applications are online and return a preliminary decision within minutes. Formal approval follows after the lender verifies your documents and pulls a full credit report. The lender values the car using industry databases like NADA Guides or Kelley Blue Book; if the appraisal comes in lower than expected, you may get a smaller cash-out amount or a denial.
Once you sign the new loan agreement, the new lender sends a payoff to your old lender and closes that account. Your new lender then has to be recorded as the lienholder on the vehicle’s title. Under the Uniform Commercial Code, a security interest in a titled vehicle is perfected through the state’s certificate-of-title system rather than a separate filing.2Cornell Law School. Uniform Commercial Code 9-311 – Perfection of Security Interests in Property Subject to Certain Statutes, Regulations, and Treaties In practice, the lender or a title agent submits paperwork to your state’s motor vehicle agency. You receive the cash by direct deposit or check within a few business days of closing.
Start to finish, expect one to two weeks. The application itself may clear in a day or two, but the payoff and title transfer usually add five to fifteen business days depending on the lenders and your state.
Costs to Budget For
Three categories of cost matter:
- Lender fees. Some charge an origination or processing fee and deduct it from your proceeds; others charge nothing.
- Title transfer and lien recording fees. These are charged by your state motor vehicle agency and generally run roughly $10 to $75.
- Interest. Cash-out refinance rates tend to run higher than standard refinance rates, often in the 7% to 11% range, with better pricing for excellent credit. Compare total interest over the life of the new loan against what you would have paid on the old one, not just the monthly payment.
Risks Worth Weighing
Going Upside Down
Cars lose value quickly, and layering a cash-out amount on top of your existing balance can push you into negative equity — owing more than the car is worth. If you need to sell or trade it in while upside down, you’ll have to cover the gap yourself.
Repossession and Deficiency Balances
The car is collateral. If you fall behind, the lender can repossess it and sell it. If the sale doesn’t cover what you owe plus repossession costs, you’re on the hook for the shortfall, called a deficiency balance, and the lender can send it to collections.3Consumer Financial Protection Bureau. What Happens if My Car Is Repossessed
What Happens If the Car Is Totaled
If your car is totaled or stolen, insurance pays the vehicle’s actual cash value, not your loan balance. After a cash-out refinance, the loan often exceeds that value, which leaves you paying on a car you no longer have. GAP insurance covers the difference and is worth considering any time your LTV is above 100%.
Is the Cash Taxable?
No. Federal tax law defines gross income as “all income from whatever source derived,” but loan proceeds don’t qualify because you have to repay them.4Office of the Law Revision Counsel. 26 US Code 61 – Gross Income Defined The transaction also isn’t a sale of the car, so there is no capital gain or loss to report. You’re borrowing against your own equity, not receiving income.
Alternatives That May Cost Less
Before committing, price the transaction against a few other options:
- A standard auto refinance. If your goal is a lower rate or payment rather than cash, a straight refinance avoids inflating the balance.
- An unsecured personal loan. No collateral is at risk, approval can come within a day or two, and terms usually run three to six years. Rates are higher than secured auto loans.
- A 0% APR credit card offer. For a small amount you can realistically clear before the promotional period ends, a balance transfer or cash advance offer may cost less than any loan. Watch for balance transfer fees of roughly 3% to 5%.
The right choice depends on how much cash you need, how fast you can repay it, and whether you’re comfortable putting the car up as collateral. If the amount is small and you can pay it off within a year or two, an unsecured option often ends up cheaper and safer despite the higher rate.