How to Use a HELOC to Buy a Car
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A Home Equity Line of Credit loan (typically known as a HELOC) is a type of loan that puts up your home as collateral. If you have the equity available to follow through with a HELOC, you can avoid the unnecessary interest hikes associated with a typical loan. If you own a home and are in the market for buying a car, a HELOC may be a helpful choice for you. However, by opening a loan up to your home share, you should make sure you have a financial standing to defend yourself against the risk of defaulting.
What is a HELOC?
A home equity line of credit is a loan you can employ, putting your house up for collateral. Generally speaking, lenders will feel assured with lending money if they know that that the “lendee” has assets to pay up, should they renege on their payments.
The major benefit of enlisting a HELOC over traditional loans is that you can avoid the interest rates of a traditional car loan. On the other hand, it not only means that you need the sufficient home equity in place, but also that you risk your livelihood and lodgings.
This isn’t nearly as much of an issue if you have your income secured, but gets precarious the more a lendee depends on the wiggle room a HELOC provides. Your livelihood, not to mention you life as a whole, could be put at risk if you don’t know how to make things work, but this shouldn’t be an issue if you know how to make things succeed within your price bracket.
For a home equity loan, lenders will usually ask for 10% equity or more; some while ask for more than 20%. It is worthwhile to keep yourself informed on the rates of payment before you settle on a decision.
Appealing to a lender requires strong financial standing
In advance of going in for a Home Equity Line of Credit, it’s advised that you get your credit checked. You will also need some proof of your income. If you apply for a HELOC loan, you should expect something along the lines of a home appraisal shortly after. The bank or lender will hire an appraiser to come to your home and figure how much the home is worth. Because of this, it’s also helpful to keep receipts at hand of work you’ve done on the house.
The specific requirements for a HELOC application will vary depending on the lender. Some will accept you owning 10% of your house, while many others will only authorize a HELOC with at least 20% of a mortgage paid off. As with any loan, you’ll need to have a good credit rating. In the event you’ve been having any issues with credit and payment, the significant risk of a HELOC probably isn’t a good move anyway.
You should inquire in advance if the car dealership you’re looking to purchase from accepts HELOCs as a form as payment.
There can be significant risk involved
A HELOC can be a helpful way to finance a car, but the commitment should not be made lightly. The loan will be putting your house on the line, after all, and you could risk losing it if there’s an issue with paying back the loan.
Before you enlist in a HELOC, it is recommended that you have enough money to be able to pay off the car all at once if need be. Even if it wouldn’t be preferable to pay off the car up front, having the option of doing so will protect you in case the interest rates increase dramatically.
All HELOC policies come with a three day cancellation policy, so you’ll have some time to opt out if you end up changing your mind.