home-equity loans
Other ways to finance an auto purchase include home-equity loans, home-equity lines of credit, and credit cards.
Banks traditionally have been willing to lend you money based on the equity in your home, either as a single home equity loan or a home equity line of credit (HELOC), essentially an open-ended line of credit that you can draw on when you want to.
The benefits are generally lower rates than you can get with a traditional auto loan. And the interest may be deductible on up to $100,000 in spending on non-home purposes, such as a new car. unpredictable because they have variable rates that can leave you paying more than you anticipated.
But the biggest danger with either option is the risk to your home. With a conventional auto loan, the vehicle itself is the collateral. But with either a home equity loan or HELOC, the collateral is your home. If something happens and you can’t make the payments, your home could be in jeopardy. That’s a big price to pay for an auto loan.
Never has that been more apparent than with the recent economic crisis, characterized by a dramatic decline in home values and an increase in foreclosures.
And even if you choose either of these options, you may find that you don’t qualify or that the hurdles are higher than ever before. That’s because, as with traditional car loans, lenders are being much pickier about who gets approved.
You also can purchase a car using a credit-card draft, which is a cash advance that works like a personal check. You may have received a draft in the mail from your credit-card company with a letter encouraging you to pay off other credit balances or make some other large purchase with them. With low introductory rates and cash advance fee waivers, it may be tempting to use one to buy a car. But we don’t advise this.
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Tags: Automobile, Credit, Credit Card, Home equity, Home equity line of credit, Home equity loan, line of credit, loan