Financing a Car with a Home Equity Loan – Shares the Facts

Released  March 6, 2007
By Megan Greuling

CHARLOTTE, N.C., March 6, 2007 – Car dealerships are constantly trumpeting their “zero-percent” financing deals. While these may sound attractive, these deals are sometimes too good to be true. Those in the market for a new car might want to consider a different form of financing for their purchase: a home equity loan or home equity line of credit (HELOC). Often used to pay for home renovations, this tool is also sometimes a good fit for car financing. outlines a few facts to consider when thinking about financing a new car through a home equity loan or HELOC:

Low rates

While auto dealers offer financing, they’re not in the primary business of lending money. This means that dealers almost always mark up the interest rate associated with the loan. But a home equity loan will usually offer more favorable terms than what you would get at the car lot. Sometimes the difference is small, but saving even half of a percentage point can make a big difference in your interest payments over the life of the loan.

Bargaining power

You may be able to negotiate a better price from a dealer if you walk onto the car lot pre-approved for a home equity loan. In fact, paying the full price of a car up front (which you’re able to do with a home equity loan) can often qualify you for rebates offered by the dealer.

Tax savings

The interest you pay on a home equity loan may be tax-deductible; that’s not the case with a car loan. Of course, you should talk to your tax adviser first to see if you qualify before you count on these savings.

In addition to these benefits, there are some risks associated with using a home equity loan to purchase a car such as:

Closing costs

Processing a home equity loan may involve higher upfront fees than a car loan so you will need to consider the fact that closing costs will be associated with this financial transaction.

Interest rates could rise

Know there is a possibility that interest rates might rise – particularly with HELOCs that have variable rates – when using this type of financing to purchase a new car. Some home equity loans have fixed rates so weigh out all of the options before selecting financing.

Using your home as collateral

When using a home equity loan to purchase a new car, you are essentially using your home as collateral for the financing. If you fail to make your home equity loan payments, you are putting you home at risk.

As with any form of financing, there are risks involved. But with risk often comes reward and the opportunity for lower monthly payments on your vehicle is worth investigating. Look into home equity interest rates and weigh out all of your finance options when purchasing a new car.

About LendingTree, LLC

LendingTree, LLC is the nation’s number one online lending exchange, providing a marketplace that connects consumers with multiple lenders that compete for their business. Since inception, LendingTree has facilitated more than 20 million loan requests and $152 billion in closed loan transactions. LendingTree provides access to mortgages and refinance loans, home equity loans/lines of credit, auto loans, personal loans, and credit cards via and 800-555-TREE.

Launched in 1998 with headquarters in Charlotte, North Carolina, LendingTree, LLC is part of IAC Financial Services and Real Estate, an operating company of IAC (NASDAQ: IACI), which also owns or operates LendingTree Loans sm, LendingTree Settlement Services, LLC, GetSmart®, RealEstate.comsm, Domania®, and iNest Realty, Inc.