Is it a good idea to use a home equity loan to pay for a new car?
Written By: admin on December 7, 2009
9 Comments
Instead of taking a car loan, use the equity from my place to it. If I were to get a car, I would get it financed. So to me, it seems smart just to cash some equity out with the added benefit of deducting interest for tax returns.
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Tags: added benefit, Car Loan, tax returns
Yes because you can write off the interest payment.
Uh, NO. Typical HELOCs are for 25-30 years. The typical car loan is 5 years. If you plot on having hte car for 30 years, then yes, it is a excellent thought. Otherwise, you’ll be paying for that car 5 cars from now… never excellent!
Plus, home interest rates are on the rise. Now is NOT the best time to get one. Car rates will be equal or much lower.
I disagree with the answer above. With a HELOC you can pay more than your minimum payment so you will not be paying for your car for 30 yrs. If you set yourself up to pay let’s say $350/ month, it will not take 30 yrs to pay off the draw.
It depends on whether you will be paying less in interest with the heloc. If you will pay less in interest then you should use it. It’s a excellent thought.
As you said, its definately a positive to be able to deduct the interest, as long as the rate you are paying on the home equity loan is similar to what the interest rate is on what would be the car loan. Like if the car manufacturer is offering a 2.9% interest rate and your home equity loan is 6%, you might get the tax deduction, but you would still be paying more (even after the deduction) then you would be paying if you went with the lower interest rate. The real negative to using a home equity loan is this- if you lose your job or get hurt and cant work, and default on your loan, if it is a car loan, they repo your car. If its a home equity loan, they take your house and sell it, which obviously is worse than just losing the car…
It really depends on what kind of car your looking to buy. If its over 10,000 it would be in your best intrest to use your equity. Your looking at about 10-12% intrest on car loan right now. Let me know if I can help you in getting a home equity loan.
It is not excellent thought.
getting in debt is never a excellent thought, if you can possibly afford not to. even if you’re writing interest off on your taxes, you’re still losing the interest that money could have made in a savings account or the market.
that said, a home equity loan is a far better deal than a car loan. just be sure to buy wtihin your means and pay it off as soon as you can.
No! We are on the cusp of the housing market changing. While property values have been steadily increasing, it is going to level off and some may even go down. If you borrow against your house, you could end up upside down with a high payment and no way to sell the house pay off the loan.
PLUS most HELOC are adjustable rate mortgages and those are going up, up up! What you reckon is a 6% loan could be 10% (or more) in a few years. You might tell yourself you’ll pay it off early, but the truth is, most people don’t. Something always comes up.
And, one other thing–why do you NEED a new car in the first place? They depreciate like crazy the second you drive it off the lot. Look at gently used 2-3 year ancient cars that have reputations of holding their value. Even better, buy it with cash–then you don’t have to pay any interest! If you are worried about reliability, buy a warranty (but not at the car dealer) to go with your used car.
Our family has two paid-for cars and we are saving what we would pay in car payments toward the next one we need to buy so we can buy it with cash. I like it!
If you default on a home equity loan kiss your house bye-bye.