A great way to save money is to refinance your paid off car at a low rate and use the money to pay off debts with higher interest rates. You take advantage of the low cost money by cashing out $10,000 or $20,000 at 1.99% to pay other debts such as student loans, mortgages and credit card debts. That’s a very quick and easy way to make profit and save money with this arbitrage method. Don’t worry! I will show you step by step on how to refinance a paid off car.
Real-Life Example for Cash-Out Refinance on a Paid Off Car
My wife and I own two vehicles outright. During my journey to be completely debt free, I have used this great arbitrage twice to refinance a paid off car, in 2012 for my Toyota Camry and in 2015 for my Toyota FJ Cruiser. See the following picture about Truth in Lending Disclosure for proof:
I effortlessly received $20,000 check for my paid off 2007 vehicle after mailing out the title to the bank (in this case it’s Pentagon Federal Credit Union). There’s also no fee to refinance my paid off car. I used all of $20,000 at 1.99% interest rate to pay down my mortgage at a much higher rate. Easy profit!
If you wonder why get into debt when you already have a paid off car. It depends on what you do with the money you receive from the car refinance. Please don’t try this method if you’re going to waste all the money away, instead of paying down your other higher interest debts.
Money is fungible so it doesn’t matter if the loan is on your car or your house. You want to pay the lowest rate possible on your debts. It might sound strange but getting into debt–by refinancing my paid off car–helps me to get out of debts quicker. No joking!
I’ll now show you how to take advantage of this interest rate arbitrage by refinancing your paid off car.
Steps to Refinance Your Paid Off Car
First, contact your credit union about an used vehicle loan. Most credit unions will let you refinance a paid off car. In my case, Pentagon Federal Credit Union (Penfed) has an used auto loan with 1.99% APR up to $100,000 on their website.
Next, determine how much you want to cash out from your paid off car. PenFed will loan you up to the NADA retail value. You can check on NADA website to see how much your paid off car is worth. If you are not sure how much to take out for your used vehicle, you can call to ask the max value after your auto loan is approved. For my 2007 vehicle, I used $20,000 as the value when I applied in 2015.
Then go online to PenFed or your Credit Union website and apply for a refinance auto loan with 1.99% APR to covert a piece of paper (title) from a vehicle that you own outright into cash. I did it twice with both of my vehicles that I own outright. I even got a reduced rate of 1.49% and used the money to successfully accelerate my get-out-of-debt plan.
When your auto loan is conditionally approved, you need to scan and email them the front and back your lien-free title. In my case, I just attached and emailed the copy of a lien-free title to firstname.lastname@example.org along with the auto loan number. PenFed will reply back that they have received the attachments and the copies of the lien-free title have been forwarded to the appropriate party for review. While the loan department is reviewing, you can check the loan status online by viewing the existing application.
Once your refinance has been officially approved, your check will come in the mail. Congrats!
Don’t forget to physically mail the title to the lender. That’s it. It is well worth the effort to refinance your paid off car if you have other debts with higher interest rates to pay.
By refinancing your paid off car and using the money to pay your other debts, you can easily save hundreds or thousands of dollars over the life of the loan. You don’t have to provide any explanation to the bank on why you want the money from your vehicle. They mail you the check, and you mail them the title. Fair and square.
If you have high interest debts such as a student loan and you have a paid off car that’s worth $20,000, why not get a cash-out refinance loan and borrow $15,000 to pay off your student loan at 6%. This arbitrage method is an excellent way to pay off high interest credit card debts or even mortgage. You can keep all the saving in your pocket instead of giving it to the loan providers.
Once you pay off the loan, does the bank send you back the title? Yes, I got my title back from PenFed in the mail once the loan was paid off. Nowadays I don’t have any debts after I paid them all off in 2016.
For me, the process to refinance my paid off car was very straightforward. The entire process was all online and via email when PenFed approved my 1.99% auto loan for five years with $0 fee. After a week, I received the check and used it to pay another higher-interest loan, ie. mortgage.
For those that still have debts out there, refinancing your paid off car is a great way to save money while trying to get rid of debts.
Frequently Asked Questions about Refinancing a Paid Off Car
By refinancing a paid off car to pay off other debts, you can save money and get out of debt faster. Here are some frequently asked questions that you might have:
1. Why should you refinance your paid off car?
You can take advantage of lower your interest rate and pay off your other loans for less money. Lower interest rates mean lower payments and more money to help you toward financial freedom. You should apply the money you receive through refinancing to your new loan and pay off your debt faster.
2. How does refinancing a paid off car work?
Refinancing a paid off car means that you will receive money for what your car is worth. In return, you transfer your car’s title to the bank as the new lien holder. The whole process is very simple and inexpensive. Your new loan will be at a lower interest rate than your other debts. By taking advantage of refinancing a paid off car, you can use the money to get out of higher interest-rate debts much faster.
3. How do I apply for refinancing a paid off car?
Simply complete an online application your bank or credit union like PenFed. The process is quick and easy. Once your loan is approved, the bank will send you a check.
4. What do I need to qualify for refinancing a paid off car?
You must be eligible for membership at Pentagon Federal Credit Union or your preferred credit union. You must be the owner of the paid off car and have the clean title handy.
5. Does it cost money to refinance a paid off car?
The refinance fees are minimal. For PenFed, you can refinance a paid off car for free. Over the long run, the money that you save after taking advantage of the low rate to pay other debts will be huge.
6. What car can I refinance?
Just about any cars that you own outright. You can refinance your paid off vehicles and use the money to pay off a higher rate loan or credit card and save money. Your car will be used as a collateral and the bank will be the new lien holder. Once you get rid off other debts, you can pay off your car loan to receive the title back.
7. What is the largest amount I can refinance a paid off car?
The maximum loan amount is depending on car’s retail value. For instance, PenFed will loan you up to the NADA retail value.
8. How long does the refinancing a paid off car take?
Normally it takes a week, but the process can be faster depending on your circumstances. Throughout the process you can monitor the progress online.
Ashley Neal (@WriteAshleyNeal) says
This is genius! Not sure I fully understand but I will reread later to see if I can do this. Thanks a million for sharing!!!
Waiting for PenFed to respond to my inquiry, but Navy Federal and Langley Federal are both refusing to do this. They say that a paid off vehicle can only be used for collateral on a personal loan.
PenFed should be able to offer you the deal. I have refinanced with them twice on two different vehicles. Good luck!
How about if you sell your car to your dad and title it to him. Then apply for a private party used car loan and have the check paid out to your dad.
Harriett Rodriguez says
What about credit . My credit is in the ,500
Johnny B says
The only thing I can say is that this does have a potential danger to it. If you end up totaling your car, the bank will get the money from the insurance company to settle your debt with them and you will get what’s left, if any. If you owe more than the car is worth, you’d still owe this amount of money, are required to keep making car payments for a now totaled car you’re no longer able to drive, and you may not have enough money to buy another vehicle. This could be quite problematic for people who are living paycheck to paycheck.
If you want to do this, make sure you at least get GAP insurance. This will make sure that you’re covered in the event that you’re upside-down on your car loan.