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 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 [email protected] 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.
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