A cash back auto refinance is one way to get cash if you find yourself in a financial bind. An unexpected expense can hit you when you least expect it. Sometimes refinancing your auto loan is the best way to get access to the cash you need. However, is refinancing your auto loan to get cash back always a good idea? Here's what you need to know.
Taking Out Debt Is Serious
Anytime someone takes out debt, they should think seriously about their situation. The same principle applies when you're considering a cash back auto refinance loan. Take a look at your financial situation and ask yourself the following questions to help determine if this type of loan is a good idea for you.
Do I Really Need Cash Now?
Cashing out the equity in your car to spend money on a want, like a cruise vacation or a new big screen TV, normally isn't a good idea. On the other hand, an unexpected expense or a family emergency could be the reason you need the money. If your house's air conditioner dies, you'll likely need to replace it faster than you can save enough money to do so. Similarly, an unexpected family sickness could require you buy an expensive airline ticket to help your family recover. These types of expenses should normally be funded by an emergency fund, but if you don't already have one you may need to use the equity in your car to pay for these types of expenses.
Is a Cash Back Auto Refinance Loan the Cheapest Option?
After you figure out whether your situation really requires access to cash right now, you need to make sure a cash back auto refinance loan is the cheapest way to get access to the money you need. Ideally, you would have money in savings so you don't have to pay any interest at all, but that isn't always the case. If you don't have access to cash in a bank account, you may want to consider borrowing money from friends or family if you know you can pay them back quickly. Alternatively, you could apply for a credit card with a 0% introductory rate on purchases to cover an expense you can pay off before the 0% interest rate expires. If those options don't work, an auto loan refinance can normally offer attractive rates, so it is still a serious contender if you really need additional cash. The rates on auto loans are normally much lower than you would pay if you put it on a regular credit card without an introductory interest rate offer.
Will Refinancing My Car Make My Car Loan Worse?
You should also consider whether refinancing will put you in a worse financial position than your current auto loan. You will be increasing the amount you owe on your loan by cashing out some equity in your car, but you may end up increasing the length of your auto loan or the interest rate at the same time. Increasing the term or interest rate of your auto loan will result in paying even more interest than if you just simply increased the amount you owe. Of course, you may be able to lower the interest rate on your new loan if your credit has improved since you originally financed your car. Whatever you do, just make sure you are aware of the changes from your current auto loan and how much those changes will cost you over the life of the loan.
Find the Best Deal Possible
Only you can determine if a cash back auto refinance loan is a good idea for your personal situation. Sometimes refinancing your car is the cheapest way to access the cash you need. If you do decide that it is the best option for you, make sure you shop around and compare multiple loan offers to get the best deal possible on your new loan.