Home Mortgage Loans

Borrowing Home Equity for a Car Loan


A home equity loan has the advantage of tax deductible interest, but that advantage can be diminished if you can get a much lower rate from the dealer's financing source. If a dealer is offering zero percent financing, that's hard to beat, especially when compared to a variable rate credit line, which can increase over time, instead of a fixed equity loan. 

Also, a typical home equity loan has a term of 15 to 20 years. If you extend your car payments over this term, the additional interest paid over the life of the loan will negate the benefit of lower payments and tax deductible interest. What if you decide to sell or trade in your car after 3 or 4 years and buy a new one. On a long term loan, you would be stuck paying on the old car in addition to having to finance the new one.

The factors that could make financial sense for using a home equity loan to buy a car, would be: The rates are comparable, the term is limited to 5 years, or you sell your home within 5 years.