Can you buy a car with a home equity loan?
My car’s engine just failed and I need a new one. I have an equity loan from my mortgage lender, but can you buy a car with a home equity loan?
Sorry to hear about your car troubles. Yes, you can use a home equity loan to buy a car. But, since the terms of home equity and auto loans are very different, avoid making a decision based solely on the rate percentage for each loan. Also, consider the following risks when making your decision:
- Your home is leveraged as collateral if you can’t pay back a home equity loan. So, you risk foreclosure if you use the equity loan to purchase a vehicle and the loan repayment plan is too much to swing.
- Home equity loans have long repayment terms. The last thing you want is to be stuck paying off a vehicle you don’t drive anymore! But, if you need a car now and don’t mind a longer repayment term, then a home equity loan should work for you.
- Risk of upside-down mortgage. Using your home equity loan to purchase a car will result in a decrease in your home’s equity. If the value of your home decreases below the current balance of your loan, it becomes an upside-down loan, and you risk owing money should anything happen to your home.
Instead, consider a standard car loan, which can likely provide a better interest rate and shorter repayment term, all while posing less risk to your home. And, if you’re looking to save money in other aspects of vehicle ownership, download the Jerry app.
Just answer a handful of questions that will take you roughly 45 seconds to complete and you’ll immediately get car insurance quotes for coverage similar to your current plan. Jerry customers save an average of $879 a year!
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