Refinancing your existing auto loan can allow you to utilise the equity within your car for extra cash, while also potentially securing a lower interest rate. This is called a cash-out car loan refinance. It involves taking out a new loan to pay off your current car loan, with additional funds provided to you upfront as usable cash.

If appropriately structured, a cash-out refinance can provide savings on interest costs, allow consolidation of debts, and give access to cash for major purchases or emergencies. However, it does come with risks like loan rejection, repossession of vehicle if unable to repay, and extension of the loan tenure.

This article will guide you through a step-by-step process to apply for cash-out car loan refinancing. Explore in detail to understand eligibility norms, documentation required, and tips for refinancing a car loan.

How to Apply for Cash-Out Car Refinance?

Below are the simple steps to apply for cash-out car loan refinancing:

Step 1: Check Eligibility Criteria

Before you apply for cash-out car loan guide, check if you meet the basic eligibility norms in terms of:

• Time left on current loan: Most loan providers want at least 12 months of the existing tenure remaining, but it varies.
• Loan-to-value ratio: The new loan amount cannot exceed 80-90% of your car’s current resale value.
• Credit score requirement: A credit score of 700+ is considered fair.
• Employment status: A full-time stable employment typically for at least the past 6 months is preferred.
• Age of applicant: The age of the applicant should be typically between 21 and 59 years (this varies by lender).

Confirm these criteria before proceeding so you avoid getting rejected later.

Step 2: Assess Equity in Vehicle

An essential prerequisite is having sufficient equity in your car, as that determines the extra cash you can derive through the refinance. Equity refers to the current resale or market value of the car minus what you still owe on the loan.

Check classified listings to see what your automobile model and year would currently sell for. Next, find out the payoff amount on your existing loan. The difference is your equity, a portion of which can become usable cash post-refinance.

Step 3: Pick Reliable Loan Providers

Shortlist a few potential loan providers to apply with. Include your existing bank or Non-banking Financial Companies (NBFCs) as well as other major banks, credit unions, and online lenders. Compare interest rates, loan terms, and lending criteria across the lending institutions to find the best fit. Those offering pre-approval are preferable since they provide rate quotes before hard credit checks.

Step 4: Submit Car Cash-out Refinancing Application

With your selected loan providers, submit complete applications mentioning that they are for a cash-out auto refinance. Disclose all details accurately, including:

• Personal and employment information
• Income proof – Form 16, payslips, bank statements
• Details of an existing car loan
• Information on other current debts
• Amount of extra cash required and purpose

Many loan providers now offer online applications for quicker processing. Provide supporting documents as needed.

Step 5: Get Conditional Approval

Based on the data furnished, the bank or NBFC will conduct eligibility verification, credit checks, income assessment and valuation of your car’s current worth. If the lending institution is satisfied, you will receive a conditional approval, with the following details:

• Interest rate and loan tenure offered
• Maximum loan amount permitted
• Net cash disbursal, which is possible after the existing loan is settled

This gives you a chance to compare options across lenders before finalising one.

Step 6: Select Your Lender

Review the conditional approvals thoroughly in terms of interest rate, fees, loan amount and the final cash in hand. Before choosing the loan provider, also consider ease of processing, customer service, and loan management options.

Then, accept the conditional approval terms with the lender you select so that they can initiate full documentation and final approval.

Step 7: Complete Documentation

Your chosen lending institution will now start the documentation formalities, information verification, technical valuation of the car, and creation of the final loan contract.

Some typical documents needed are as follows:

• Signed loan application form
• KYC documents – ID, address proof
• Previous loan account statements
• NOC certificate from the existing financier
• Car registration certificate, insurance papers

Submit the requisite documents promptly so that the process does not get delayed on your account.

Step 8: Get Final Approval

If all submitted documents are in order, the loan provider will provide final approval and issue a formal sanction letter specifying the exact loan amount sanctioned, interest rate, repayment schedule, disbursal date, etc.

This completes the cash-out refinancing application process. Please read this sanction letter thoroughly and sign the loan agreement if you consent to all terms and conditions.

Step 9: Complete Old Loan Settlement & Cash Disbursal

On your consent, the financial institution will directly pay off your old car loan account and release the remaining approved cash amount into your linked bank account as disbursal.

Your cash-out auto refinance is now active. Use the surplus cash judiciously for the intended purpose. Start repaying the new loan amount per the tenure without defaults to avoid risking repossession.

Conclusion

While the application process might seem complicated, following it systematically while providing complete information will help secure prompt approval on a cash-out car refinance. Used car loan and car refinancing options from Shriram Finance can effectively serve similar purposes—allowing you to repay an existing loan and finance a used car. The resultant savings, consolidated debts, and cash obtained make the effort worthwhile. Choose an amount optimal for your financial capacity to ensure comfortable repayment.

FAQs

1. What documents do I need to prepare for the refinancing application?

You often need the following documents: A driver’s licence, proof of income (like pay stubs), car title, current loan details, and insurance information. Loan providers may also ask for bank statements or credit reports.

2. What factors should I consider when choosing a lender for cash-out refinancing?

To find the best fit, look at interest rates, loan terms, fees, and the loan provider's reputation. Then, compare customer reviews and how quickly they process applications.

3. How do I complete the application for cash-out car loan refinancing?

Complete the loan provider’s online or paper application with your personal, financial, and car details. Then, submit it along with the required documents for review.

4. What happens after I submit my refinancing application?

The bank or NBFC reviews your application, checks your credit, and appraises your car. They’ll then approve or deny the loan and share the terms if approved.

5. How can I prepare for the appraisal of my vehicle?

Clean your car thoroughly, fix minor issues, and gather maintenance records. Be ready to show the car to the appraiser or provide photos if required.

6. What should I do if my refinancing application is denied?

Ask the loan provider why it was denied, and work on improving issues like your credit score or debt. You can also apply with other lenders or explore different loan options.

7. How do I finalise the cash-out refinancing and access my funds?

After reviewing the terms, sign the new loan agreement. The lender pays off your old loan and sends you the extra cash, usually by check or bank transfer.