Loan-to-Value

• Secured loans, such as automobile loans, work on the basis that if you default on loan payments, the lender assumes control of the collateral used to secure the loan. For a lender to fully secure a loan, the amount you borrow cannot exceed the value of the collateral. Some lenders write purchase car loans equal to 125 percent of a car's value, but cash-out refinance loans are typically capped at between 80 and 100 percent of a car's value.
  
  

Paying Off Your Loan

• When you refinance a car loan, your new lender contacts your old lender and requests a pay-off quote. You can take the difference between the car's value and the pay-off amount as cash back. Most lenders have processing fees for car loans, however, and in many states you also have to pay document tax whenever you take out a loan. You can choose to roll these costs into the loan or pay the costs as an out-of-pocket expense. Ultimately, you are left with the same amount of cash.
  
  

Restrictions

• Cars and other vehicles lose value due to having limited lifespans. Generally, lenders only finance cars that are less than 7 years old. Additionally, term times offered on cars are progressively shorter for old vehicles. The term time impacts your payment because shorter term times mean larger monthly payments. When you take out a car loan, the bank examines the total amount of your monthly debt payments relative to your total monthly income. Generally, your debt-to-income ratio cannot exceed 50 percent. Therefore, people who take out loans on older cars often have problems qualifying for large amounts because short term times mean payments would exceed DTI maximums.
  
  

Other Considerations

• When you take out a cash-out refinance loan on a car, you risk losing that car if you ever fall behind on your loan payments. The money you can borrow on cash-out car loans are similar to the sums available on unsecured products, such as credit cards. If you have a credit card and cannot make your payments, you do not have to worry about losing your car. Therefore many people prefer not to tie loans to their cars. Secured loans such as cars, however, have fixed low rates, whereas credit cards have variable rates that are often very high.