back to articles | December 31, 2018 | Dale Peterson

Categories: Types of Car Loans

Home Equity Auto Loans


Using a Home Equity Line of Credit to Buy a Car

Should I use a home equity line of credit to buy a car? There are several advantages of using a home equity line of credit to buy a car instead of getting a car loan.

Advantages of Home Equity Auto Loans

A home equity loan is often a less expensive option than a traditional car loan, and the cost difference is increased with the length of the loan. You can usually get a home equity loan at a lower interest rate than an auto loan, but the biggest advantage is that home equity loans are tax deductible, which could lead to a large amount of savings.

Home Equity Auto Loans vs. a Traditional Auto Loan

Unless the home equity lender doesn't charge any fees, it is difficult to compare interest rates between a traditional auto loan and a home equity auto loan, because up-front fees are folded into the auto loan's APR.

A good rule of thumb is that an auto loan is cheaper only when it has a rock bottom, promotional interest rate subsidized by the auto maker.

If you are thinking of moving in a few years, you might shy away from a home equity auto loan no matter what the cost difference.

Home Equity Line of Credit for Auto Loan

How does a home equity auto loan line of credit work? In most instances, you may borrow up to 75% of the appraised value of your home (minus the amount you owe on your home loan). For example, if your home is appraised at $100,000, and you owe $50,000 on the home, you could get a credit line of $25,000. You can use this home equity line of credit as a "home equity auto loan."