Why the idea comes up
Home equity loans are secured by your house, so their rates are often lower than unsecured loans and sometimes lower than auto loans. It's natural to wonder whether you could borrow against your home and drive off with a cheaper car loan.
The rate is only one piece. How long you'll be paying, what secures the debt and how the timing fits your purchase matter just as much.
Compare the total cost, not the payment
Dealers often sell on monthly payment, and stretching the term is the easiest way to make a payment look small. A 15 or 20-year home equity loan stretches it much further. Even at a lower rate, more years of interest can add up to a higher total cost than a 5-year auto loan.
Ask for the total of payments on each option. Loan disclosures show it, and it's the fairest way to compare a short loan with a long one.
Timing doesn't match car shopping
You can often finance a car the same day you buy it. A home equity loan takes longer: an application, documents, a review of your home's value and a closing, which usually adds up to a few weeks. If your current car is failing, that gap matters.
Dealers and carmakers also run promotional financing from time to time. If you'd qualify, that offer may beat borrowing against your house.
What secures the debt
An auto loan is tied to the car. A home equity loan is tied to your home. If money gets tight later, missed payments on a home equity loan put your house at risk, for a vehicle that's worth less each year you drive it.
Loan size and fit
CapCenter offers fixed-rate home equity loans from $50,000 to $250,000, on single-family primary residences and second homes. If your car costs less than that, a home equity loan may not be the right fit for this purchase alone. Some people borrow equity for a larger goal, such as a renovation, and a car is one part of a bigger plan. Even then, think hard about the term.
Other ways to pay for a car
- An auto loan from a bank or credit union, with a term matched to how long you'll keep the car
- A larger down payment from savings to shrink the loan
- A less expensive or used vehicle
- Waiting a few months to save more
- Promotional dealer financing, if the terms are clear and fair
If you use equity anyway
If a car is part of a larger home equity loan, consider paying off the car portion on an auto-loan schedule, such as within five years, by paying extra each month. Ask your loan consultant whether extra payments carry any penalty. CapCenter home equity loans come with ZERO Closing Costs (restrictions apply).