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Can I use a home equity loan to buy a new car?
My bank has a great rate (about 2%) on home equity loans right now. I also need a new car. Can I use the home equity loan to purchase a car—is this a good idea?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Theoretically, using a home equity loan instead of a
car loan
to purchase a vehicle seems like a no-brainer. Your interest rate is lower and your car isn’t held as collateral.However, whatever you’re using the money to buy, a home equity loan uses your house as collateral. If you were to default on the loan, lenders could come after your home rather than your car, which is a much bigger risk.
Home equity loans also come with the following financial consequences:
- Closing costs
- Longer repayment terms than most car loans
- A decrease in your home equity
If you can pay the loan off quickly and have a nest egg to fall back on, taking out a home equity loan may work for you, but it’s not recommended to everyone.
Since you’re going to have a house and new car to your name, have you considered bundling your home and auto insurance policies?
Jerry
can help you compare competitive quotes from up to 50 top insurance providers to find you hundreds of dollars in annual insurance savings.View full answer
- Gregory R.
WHY YOU CAN TRUST JERRY
Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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