 TITLE: What Is a Cash-Out Auto Refinance? CONTENT: What Are the Risks of a Cash-Out Auto Refinance?\n------------------------------------------------\nWhile using your vehicle's equity to consolidate high-interest debt or cover emergency expenses can be helpful, it's also important to understand the potential pitfalls that could make your financial situation even worse:\n*   **You could increase your existing debt.** If you're using a cash-out auto refinance to pay for emergency expenses, increasing your debt—and associated monthly payments—could make your situation even more challenging. Unless you're certain you'll be able to afford the higher monthly payments, look elsewhere for relief.\n*   **You could go upside down on your loan.** Most vehicles depreciate fairly quickly, potentially faster than you can pay down the loan balance. If you borrow 100% of your car's value or close to it, rapid depreciation could mean you end up with negative equity. If you end up selling the car or total it in an accident, you may be on the hook for the difference between the car's value and what you owe on the loan.\n*   **You run the risk of repossession.** If you're struggling financially, increasing your monthly payment with a cash-out auto refinance loan could make it increasingly difficult to keep up. If you stop making payments, the lender may repossess the vehicle—leaving you without a car and a negative mark on your credit report to boot.\nMake sure you're considering both the benefits and the drawbacks of a cash-out auto refinance before you pull the trigger.  \nHow Does Refinancing an Auto Loan Affect Credit?\n------------------------------------------------\nIn general, refinancing your auto loan won't have a significant impact on your credit score. When you first apply for the loan, the lender will run a hard inquiry on your credit report, which can temporarily lower your credit score by a few points.\nKeep in mind that when you're shopping around, all of your hard inquiries will be combined into one for credit score calculations, as long as you complete your rate-shopping within a short period—14 to 45 days depending on the credit score model being used.\nIf approved, the new auto loan will also reduce your average age of accounts, which impacts your length of credit history. And, of course, if your new loan is higher than your old one because you took cash out of your vehicle's equity, it could impact your amounts owed.\nHowever, as long as you make your payments on time and manage your other debts well, you likely won't see any long-lasting negative effects with an auto loan refinance.  \nShould You Do a Cash-Out Auto Refinance?\n----------------------------------------\nThere's no one-size-fits-all answer to whether a cash-out auto refinance is right for someone or not. As such, it's crucial that you take the time to consider your situation, your reasons for wanting one and other alternatives you have to accomplish your goal.\nAlso, be sure to check your credit score before you start applying. The higher your credit score, the better your chances will be of scoring favorable terms on the new loan. If your credit isn't where you want it to be, it may make sense to take steps to improve your credit before you apply for a new auto loan. END