Should I Use Home Equity to Buy a Car?
Do you have a home loan? Depending on how long you have been paying it off for, the chances are that you may have a substantial amount of equity built up.
How can home equity help?
Home equity can be used as an asset. Having assets can be beneficial as it allows you to use them as collateral to get other assets, such as cars.
Instead of using traditional car finance methods, some people use the equity that they have in their homes as a means with which to buy a car. However, is this a good idea?
Benefits of using home equity to buy a car
This is the most common and popular reason why people use home equity to buy a car. Using home equity means that you don’t have to find a broker or lender to help with car finance. All you do is take the equity you need and use it to buy a car.
By using home equity to buy a car, you don’t have to undergo credit checks. This can be beneficial for those with a bad credit rating or poor credit history and avoids being rejected by lenders unwilling to consider your application.
Disadvantages of using home equity to buy a car
You are likely to incur fees when taking money out of your home equity. These redraw fees can be quite substantial so consider the costs carefully. By simply getting a car loan, any fees should be up front.
Once you’ve used home equity to buy a car, you’ll need to pay back that amount over the length of your home loan, which is much longer than a typical car loan. By taking money out of your home equity, you’ll pay much more interest overall.
It’s much easier to keep track of your debts when you view them separately. Keeping your home loan and your car loan separate means you’ll know exactly how much you owe on each – giving you a more accurate idea of what you still owe.
What’s the best decision for me?
If you’re considering using home equity to buy a car, you need to think carefully about the fees you’ll incur as well as the long-term effects of taking money out of your home equity.
Using home equity
If you really want a quick and convenient way of paying for a car without undergoing standard checks or dealing with lenders, you could consider using home equity. It’s essential that you are organised with payments and always keep track of the loan amounts separately to understand exactly when the car is paid off.
Speaking to lenders for your car loan
It’s really important to understand that there are a huge variety of lenders so even if you’re doubtful that you’ll be approved for a car loan, speak to us before you decide to use your home equity.
For many people, keeping track of the loans when they’re tied up can be really confusing so stick to finding the right car loan for you and keep things separate. If you have time on your side, don’t rush into using home equity and you’ll likely end up paying less in the long term and avoid high interest costs and redraw fees.
The final say
There’s no denying that using home equity to buy a car can work for some people, but it generally becomes confusing and complex – you really do need to know exactly what you’re doing.
The best step you can take is to contact us to discuss your options. We can help you find the right car loan for you. Our decades of experience have given us a clear insight into the industry and we have access to a wide range of lenders and all types of car loan options.