Cash-Out Auto Refinance Calculator
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Reviewed by Calculator Editorial Team
Cash-out refinancing allows you to take out more money than you owe on your current auto loan, using your car as collateral. This can be useful for home improvements, debt consolidation, or other major expenses. Our cash-out auto refinance calculator helps you estimate your potential cash-out amount and understand how refinancing will affect your monthly payments and total interest.
How Cash-Out Auto Refinancing Works
Cash-out refinancing involves replacing your current auto loan with a new loan that has a higher loan amount. The difference between the new loan amount and your current loan balance becomes your cash-out amount. Here's how the process typically works:
Step 1: Determine Your Loan-to-Value Ratio
The lender will calculate your loan-to-value (LTV) ratio, which is the amount you're borrowing divided by the value of your car. Most lenders require this ratio to be below 80% to ensure you have enough equity in your vehicle.
Step 2: Get Approved for the New Loan
You'll need to meet the lender's credit requirements and demonstrate that you can afford the new loan payments. The lender will review your credit score, income, and debt-to-income ratio.
Step 3: Receive Your Cash-Out Amount
Once approved, the lender will pay off your current loan and give you the difference between the new loan amount and your current balance. You'll then be responsible for making the new loan payments.
Important Considerations
Cash-out refinancing can be a useful tool, but it's important to carefully consider the costs and implications. The new loan will typically have a higher interest rate than your current loan, which can increase your total interest payments over time. Additionally, if you sell or trade in your car before the new loan is paid off, you may owe more than the car is worth.
The Cash-Out Refinance Formula
The cash-out amount is calculated by subtracting your current loan balance from the new loan amount:
Cash-Out Amount Formula
Cash-Out Amount = New Loan Amount - Current Loan Balance
To calculate your new monthly payment, you can use the standard loan payment formula:
Monthly Payment Formula
Monthly Payment = P * (r(1+r)^n) / ((1+r)^n - 1)
Where:
- P = Principal (New Loan Amount)
- r = Monthly Interest Rate (Annual Rate / 12)
- n = Number of Payments (Loan Term in Months)
The total interest paid over the life of the loan can be calculated by subtracting the principal from the total of all monthly payments.
Worked Example
Let's say you have a current auto loan with a balance of $15,000 at 5% interest. You want to refinance to a new loan of $25,000 at 6.5% interest for 60 months.
Calculating the Cash-Out Amount
Cash-Out Amount = $25,000 - $15,000 = $10,000
Calculating the New Monthly Payment
Monthly Interest Rate = 6.5% / 12 = 0.0054167
Monthly Payment = $25,000 * (0.0054167(1+0.0054167)^60) / ((1+0.0054167)^60 - 1) ≈ $478.50
Total Interest Paid
Total of Monthly Payments = $478.50 * 60 ≈ $28,710
Total Interest = $28,710 - $25,000 = $3,710
| Metric | Current Loan | New Loan |
|---|---|---|
| Loan Amount | $15,000 | $25,000 |
| Interest Rate | 5% | 6.5% |
| Monthly Payment | $275.50 | $478.50 |
| Total Interest | $1,800 | $3,710 |
| Cash-Out Amount | N/A | $10,000 |
Pros and Cons of Cash-Out Refinancing
Pros
- Access to Additional Funds: Cash-out refinancing provides immediate access to funds that can be used for home improvements, debt consolidation, or other major expenses.
- Lower Interest Rates: If you qualify for a lower interest rate with the new loan, you could save money on interest payments over time.
- Improved Loan Terms: You may be able to secure a longer loan term or better loan terms than you had with your current loan.
Cons
- Higher Monthly Payments: The new loan will typically have higher monthly payments than your current loan, which could strain your budget.
- Increased Total Interest: If the new loan has a higher interest rate, you could end up paying more in total interest over the life of the loan.
- Risk of Owning More Than Your Car is Worth: If you sell or trade in your car before the new loan is paid off, you may owe more than the car is worth.
Frequently Asked Questions
What is the maximum loan-to-value ratio for cash-out refinancing?
The maximum loan-to-value ratio for cash-out refinancing typically ranges from 75% to 80%. This means you can borrow up to 75-80% of the value of your car. The exact ratio depends on the lender and your individual circumstances.
How long does it take to get approved for a cash-out refinance?
The approval process for a cash-out refinance can take anywhere from a few days to a few weeks, depending on the lender and your individual circumstances. Some lenders offer same-day approval for pre-qualified borrowers.
Can I cash-out refinance if I have bad credit?
It can be challenging to cash-out refinance with bad credit, but it's not impossible. Some lenders specialize in working with borrowers who have less-than-perfect credit. You may need to shop around and be prepared to pay higher interest rates or fees.
What happens if I sell or trade in my car before the new loan is paid off?
If you sell or trade in your car before the new loan is paid off, you may owe more than the car is worth. This is because the lender will still be owed the remaining balance on the loan, even if you no longer own the car.