Yes, you can do a cash-out refinance on a car. It works by replacing your existing auto loan with a new, larger loan: the new loan pays off your old balance, and you keep the difference as cash. Say you owe $12,000 on a car worth $20,000. A lender might write a new loan for $16,000, use $12,000 of it to close out your current loan, and hand you the remaining $4,000. The appeal is the rate — you’re borrowing against the car at auto-loan pricing rather than credit card or unsecured personal loan pricing.
The new loan is secured by the vehicle. The lender records a lien on the title, and if you stop paying, the car can be repossessed. Because you now owe more than you did before, your monthly payment usually goes up. If the lender stretches the term to keep the payment flat, you pay more interest over the life of the loan instead.
Whether You Can Qualify
Four things drive approval: how much equity you have in the car, the car itself, your credit, and whether your existing loan lets you leave cleanly.
Equity and Loan-to-Value
The car has to be worth meaningfully more than the payoff on your current loan. Lenders measure this as loan-to-value, or LTV — the new loan amount as a percentage of the car’s current value. Most cap LTV around 125%, so the new loan cannot exceed 125% of what the car is worth. A lower LTV improves both your odds of approval and the rate you’re offered. If you bought the car recently or put little down, you may simply not have the equity yet.
The Vehicle
Age and mileage limits are common because lenders don’t want the car to depreciate faster than you pay down the loan. Typical thresholds run 8 to 10 years old and 100,000 to 150,000 miles, though some lenders are more flexible. Salvage titles, heavy modifications, and excessive wear make refinancing harder.
Credit and Income
Minimum credit score requirements vary. Some lenders will consider scores in the low 500s, others want 600 or higher, and the best rates generally go to borrowers at 690 and above. Lenders also look at your debt-to-income ratio to confirm you can carry the higher payment. A co-signer with strong credit can help if your own score is on the lower end.
Your Current Loan
Check your existing loan agreement for a prepayment penalty before you apply. That fee can erase the benefit of refinancing. Your current lender can confirm it if the contract language is unclear. Some states prohibit prepayment penalties on auto loans, so it’s worth checking your state’s rules too.
What You’ll Need
Having your paperwork ready before you apply keeps underwriting moving. Most lenders want:
- The vehicle identification number (VIN) and current mileage
- A payoff statement from your current lender showing the exact remaining balance and per-day payoff amount, which you can usually pull from the lender’s online portal
- Proof of income — recent pay stubs, W-2s, or tax returns; self-employed borrowers may need bank statements or a profit-and-loss statement
- Proof of insurance showing comprehensive and collision coverage
- A valid government-issued ID
- The car’s year, make, model, and trim, which the lender uses to run an automated valuation
Discrepancies between what you enter and what a vehicle history report shows can slow things down or kill the application, so verify everything before you submit.
How the Process Runs
Most lenders let you apply online and return a preliminary decision within minutes. Formal approval follows once they verify your documents and pull a full credit report.
The lender then values the car using industry databases such as NADA Guides or Kelley Blue Book. If the appraised value comes in low, the lender may cut the cash-out amount or decline the loan.
At closing, you sign a new loan agreement covering the rate, monthly payment, term, and total financed. That contract replaces your old one. The new lender sends the payoff directly to your previous lender, closing out the original loan. Your new lender is recorded as the lienholder on your title through your state’s motor vehicle agency.1Cornell Law School. Uniform Commercial Code 9-311 – Perfection of Security Interests in Property Subject to Certain Statutes, Regulations, and Treaties The cash portion is disbursed by direct deposit or check within a few business days.
Timeline and Costs
Plan on one to two weeks from application to the old loan being fully paid off. The application decision may come in a day or two, but paying off the prior lender and transferring the title lien typically adds five to fifteen business days depending on the lenders and your state.
Costs to budget for:
- Lender fees. Some charge an origination or processing fee; some don’t. Where they apply, they’re usually deducted from your cash proceeds.
- Title transfer and lien recording fees, set by your state’s motor vehicle agency, generally ranging from roughly $10 to $75.
- Interest. Cash-out refinance rates tend to run higher than standard refinance rates. Average rates often fall in the 7% to 11% range, though borrowers with excellent credit may see lower offers. Compare total interest over the new loan against what you’d pay on the current one — not just the monthly payment.
The Real Risks
The tradeoffs on a cash-out auto refinance are meaningful, and worth sitting with before you sign.
Negative Equity
You’re borrowing close to (or above) the car’s current value, so you’re at high risk of being upside down — owing more than the car is worth. Cars depreciate quickly, and layering cash-out on top of the existing balance accelerates the problem. If you need to sell or trade in while upside down, you cover the gap yourself.
Repossession and Deficiency Balances
The car is collateral. Miss payments on the new, larger loan and the lender can repossess and sell it. If the sale doesn’t cover what you still owe plus repossession costs, you’re on the hook for the shortfall, called a deficiency balance, and it can be sent to collections.2Consumer Financial Protection Bureau. What Happens if My Car Is Repossessed
Insurance Gap on a Total Loss
If the car is totaled or stolen, your insurance pays actual cash value — not your loan balance. After a cash-out refinance, the balance can easily exceed that payout, leaving you with debt and no car. GAP insurance covers the difference and is worth considering any time your LTV is above 100%.
More Interest Overall
Even at the same rate, a bigger loan means more interest. Stretching the term to keep the payment down amplifies it. The Consumer Financial Protection Bureau notes that longer loan terms can double the total interest cost compared to shorter terms.3Consumer Financial Protection Bureau. Take Control of Your Auto Loan
Is the Cash Taxable?
No. Cash from a cash-out refinance is loan proceeds, not income. Federal tax law defines gross income as “all income from whatever source derived,” but borrowed money doesn’t qualify because you have to pay it back.4Office of the Law Revision Counsel. 26 US Code 61 – Gross Income Defined You also don’t trigger a capital gain, because you aren’t selling the car. You’re borrowing against it.
When Something Else Fits Better
Cash-out refinancing isn’t always the cheapest way to get cash. Compare it against:
- A standard auto refinance, if your real goal is a lower rate or payment and you don’t actually need cash. You avoid the risks of a larger loan balance.
- An unsecured personal loan, which doesn’t put your car at risk. Approval can come in a day or two. Rates are higher and terms are typically shorter, often three to six years.
- A 0% APR credit card offer, if you need a smaller amount and can realistically pay it off inside the promotional window. Watch for balance transfer fees of 3% to 5% and the rate that kicks in when the promo ends.
The right choice comes down to how much you need, how fast you can repay, and whether you’re comfortable putting the car up as collateral. If the amount is small and the payoff window is short, an unsecured option may cost less overall despite the higher rate.