Can I Do a Cash-Out Refinance With Bad Credit?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - April 5, 2021

Yes, and qualifying for a cash-out refi can be possible with bad credit! A cash-out refinance can be a good way to cover other expenses that need attention, but you need to meet requirements to qualify.

Cash Out the Equity In Your Vehicle

A cash-out refinance is done by refinancing the remaining balance on your auto loan, taking the vehicle’s equity, and turning that into cash. You’re replacing the vehicle’s loan with another, and the new loan is for the car's value.

Most borrowers who refinance do it to get a lower car payment, but those that do a cash-out refinance are looking to get some quick cash.

Here’s a quick example to see how it works:

You owe $4,000 on your auto loan, and your vehicle is estimated to be worth around $6,000. This means you have roughly $2,000 in equity. If you qualify for a cash-out refinance, you take on a loan for the remaining loan balance and the equity amount. You get a new loan of $6,000, and $2,000 of that is cash in your pocket.

Now that you see how a cash-out refinance works, you can see that having equity in your car is required to get cash when you refinance. And, there are usually credit score requirements to consider – so not everyone can qualify. However, qualifying for refinancing is possible with bad credit.

Requirements of a Cash-Out Refi

Your credit score is important in most lending and refinancing situations. Lender’s use your credit score and reports to see if you’re in a good spot for auto loan approval.

To qualify for refinancing, most lenders require that your credit score has improved since you started the vehicle’s loan. Additionally, refinancing lenders look at your payment history on the loan and typically require that you’ve made all payments on time.

This is good news for bad credit borrowers. Your credit score doesn’t necessarily have to be in tip-top shape – just better than it used to be. An improvement shows that you’ve been able to manage your credit and that you’re more likely to succeed if you're approved for refinancing.

If your credit score has improved, the next step is determining your vehicle’s equity position. When you owe less on your car loan than its value, you’ve got equity. But if the opposite is true, you’ve got negative equity. A cash-out refinance or refinancing at all isn’t possible when your loan balance exceeds what the car is likely to sell for.

To see where you stand, review your auto loan balance. Make a note of it, then check out vehicle valuation websites such as NADAguides and/or Kelley Blue Book. These sites offer free estimates of a car’s value. In most cases, you simply enter your vehicle’s information (be honest because a lender usually checks for themselves) and see your car’s private party value.

If your vehicle has equity, then you’re on your way to qualifying for a cash-out refi!

Other Common Cash-Out Refinancing Requirements

Besides having an improved credit score and having equity in your car, lenders have vehicle standards that need to be met concerning your vehicle’s condition and the loan.

Typically, refinancing lenders also require:

  • The loan is at least one year old
  • You don’t owe too much or too little on the loan
  • Your car has less than 100,000 miles
  • Your vehicle is less than ten years old

Lenders always vary in their specific requirements, but these requirements are pretty common. Most prefer to refinance cars that have value, are somewhat newer, and have lower mileage on them.

What if I Don’t Have a lot of Equity?

If you do qualify for a cash-out refinance but you find that cashing your equity doesn’t yield a lot of money, then regular refinancing may be an option to consider.

As we mentioned, borrowers typically refinance to get a lower monthly car payment. If you need more disposable income each month, or you’re simply having trouble keeping up with your car loan, then lowering your interest rate or extending your loan term through refinancing could free up some income.

You could also give yourself some time to build more equity and refinance down the road. With each auto loan payment, you’re lowering your loan balance. And, a car’s depreciation slows down over time if you take good care of it, so it becomes a little easier to build equity over time.

Don’t Qualify for Refinancing?

Not every vehicle, loan, or credit score is eligible for a cash-out refinance. If you’re not in a position that allows you to refinance, it might be time to consider trading in the car or selling it.

If you’re struggling to find the bad credit resources you need, we want to help. At CarsDirect, we’ve created a nationwide network of dealerships that are signed up with subprime lenders that specialize in credit challenges. To get started on the path to your next auto loan, complete our free auto loan request form. We’ll look for a dealer near you that’s equipped with bad credit lenders.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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