Homeowners have loan options when they want to purchase a car. For example, they may acquire an auto loan or use a home equity loan. However, it's best to weigh the benefits and drawbacks of each one before deciding how to proceed.
Significance
A home equity loan is money that homeowners borrow based on the amount of equity in their home. Equity is the value of the home minus all liens, or loans, against it. These loans may be used for many purchases. An auto loan is a lump sum of money borrowed specifically for the purchase of an automobile.
Benefits
A home equity loan usually has lower interest rates than auto loans and may be repaid over a longer period of time. The interest that homeowners pay on an equity loan may be tax deductible, according to U.S. Bank.
Warning
Homeowners who use a home equity loan to buy a car may be placing their home at risk. If they default or fall behind in their loan payments, their properties are subject to foreclose by the lending institution. If an auto loan is not repaid, then the car may be repossessed.
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