When it comes time to buy a new car most people by default either trudge over to the bank for a car loan or arrange to finance through the dealer. This is, after all, how it’s been done since the days of the Model A. There is, however, an alternative source of financing many people overlook, but which is staring them right in the face most of the time: their home. Using the equity in your home to buy a new car is an idea that makes a lot of sense and below we’re going to go into the reasons for that.
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The Ins and Outs of Using Home Equity to Purchase Your Next Car
Home equity is an often untapped resource that can actually help you save a significant amount of money on your new car purchase. In many cases, it’s the next best thing to paying with cash. Here are 5 reasons why you’ll want to consider a home equity line of credit rather than a traditional car loan to purchase your next car.
- Lower Rates – One of the biggest benefits of buying a car using home equity is that interest rates on a home equity line of credit or HELOC are typically several percentage points or lower than the rate you’d receive on a standard car loan. As such you could save hundreds, if not thousands over the life of the loan depending on the value of the car in question and how quickly you repay the HELOC.
- Leverage with the Dealer – If you walk into the dealership with a HELOC you have far more negotiating leverage over the dealer than you would if you financed through them or by way of a car loan from the bank. As such, depending on your negotiating skills, you may be able to obtain your new car for a substantially lower overall price or at the very least convince the dealer to throw in plenty of extras at no additional charge.
- Draw Period Flexibility – When you’re issued a home equity line of credit you typically have a lot of flexibility regarding when you can draw on it. So there’s no need to rush your search. You can take your time, shop around and talk to a number of different dealers all the time knowing that when you’re ready to actually ready to make the purchase the HELOC will be there for you.
- Repayment Flexibility – When you purchase your car using a home equity line of credit you typically have more than one way to repay the loan. You can repay the loan quickly and minimize interest payments or if you’re experiencing tough times you can extend the payment period out over the length of the mortgage. Some home equity loans give you the option of paying only interest for the first 10 or 15 years which can be a lifesaver if you suffer a sudden financial setback after acquiring the car. Be aware though that the longer you stretch out the repayment process the more you’ll wind up paying for the car, so the quicker the better when it comes to HELOC repayments.
- Tax Advantages – Currently there are no tax advantages when you finance your car through the bank or the dealer. If, however, you use a home equity line of credit to purchase your car the interest you pay on that HELOC will likely be tax-deductible. This is yet another way the HELOC can help save you money over a standard car loan.
If you have equity in your home and are contemplating buying a new car why not explore the possibilities of using that equity to make the purchase? Between the lower interest rate, the additional leverage you’ll have to negotiate a lower price, tax advantages and more you’ll likely wind up saving a substantial amount over what you would have paid if you went the root of the standard car loan.