If you’re one of the lucky home owners who has equity in your property, it can be used for many things. A common use is to buy a car and pay off the auto loan with a home equity line of credit, or HELOC.
Steve Bucci, the “Debt Adviser” at Bankrate.com, says that consumers should consider both the pros and cons of using a home equity line of credit to pay off an auto loan.
Pros include flexibility to shorten or lengthen the time it takes to pay off the home equity line of credit, opting to make interest payments only on the amount borrowed from the line of credit and tax deductions, Bankrate.com reports.
Cons include variable interest rates, a HELOC that could outlive your car and less equity available in your home, Bucci says.
He suggests consumers determine the current market value of their home and consider how stable the housing market is in their area.
“On balance, using a HELOC can be a great tool to finance a car,” Bucci says. “But as with any loan, be sure you know the terms of the loan, don’t overleverage yourself and don’t carry debt any longer than it is in your best interests to do so.”
With auto loan rates at record lows, an auto loan may cost less than a home equity line of credit, so get out your calculator and crunch the numbers for both to save money.
Using your home’s equity to pay off an auto loan is a good and bad idea, depending on your individual situation.
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