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Using Home Equity to Buy a Car

Home equity loans are a great way to borrow, and although many homeowners use them for home improvement projects, they can also be used for other purchases, like car buying. Equity grows as the value of your property rises, and many consumers take advantage of the gains in the real estate market without having to actually sell their house, by using convenient home equity loans. Whereas a home equity line of credit operates much like a credit card, an equity loan is more like a typical bank or credit union loan – the kind of loan consumers prefer when looking for a longer repayment schedule and more competitive rates. If you want to borrow a set amount of money with a fixed interest rate over a period of a few years, the home equity option is an appropriate choice. For example, rather than borrow money from a car dealership – at a high rate of interest and with relatively unfavorable terms – you might be better off borrowing against the equity in your home. The savings over the life of the loan (thanks to a lower interest rate and some potential tax deductions) can be considerable.

And as your property continues to increase in market value, the otherwise untapped equity will work for you, to help make needed purchases along the way. Consider, for instance, a homeowner who bought a house for $200,000 a few years ago and now realizes that the same property is worth $260,000. If the home appreciates in value at a rate of just 6 percent per year for the next three years, it will be worth over $300,000. With an increase in value of more than $40,000, the built-in equity is more than enough to offset the expense of a new vehicle in three years’ time. Rather than sell the house to gain access to those funds, however, the homeowner can simply use an equity loan that is paid back at a fixed interest rate over a period of years.

Once the loan is repaid, the homeowner’s untapped credit is once again available for other purposes. And at tax time, the interest paid on a home equity loan may qualify for an itemized deduction. Consult a tax planner and your mortgage company or bank before you begin shopping for your next automobile. With a convenient home equity loan, you may be able to drive away with a great deal without ever having to put a dent in your savings account.


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