Auto Loan or Home Equity Loan? You Decide

If you’re looking to finance a new vehicle, you have more choices than you might think. Auto loans are the typical way to go. Home Equity loan can provide tax benefits.

Most people don’t realize they can use a home equity loan to buy a car, and why would they? Auto Loans are quick and easy, and they usually offer lower rates than a home equity loan. Plus, you’d have to live in your house for quite a while before building enough equity to make a large purchase like a car.

That’s where the home equity loan comes in handy, though. If you’ve lived in your home long enough to have that much equity, there’s a good chance you’re not paying much interest on your mortgage loan anymore. Your mortgage may even be paid off completely. When that happens, you lose the tax benefit that comes with your mortgage.

A home equity loan comes with a similar benefit. In most cases, if you itemize on your tax return, the interest you pay on your home equity loan is tax deductible. Of course, we are not equipped to give you tax advice, so you’ll need to check with your tax advisor before you do anything. The other advantage of using a home equity loan to fund your vehicle is the length of terms. Most auto loans go up to about five years. The terms on a home equity loan are considerably longer. That could help keep your monthly payments down if you’re on a limited or fixed income.

Auto loans also have their benefits. When you get your auto loan at Neighborhood Credit Union, and you shop our participating dealers, you can close your auto loan right at the dealership. Home Equity loans are not as flexible in that regard. You must close a home equity loan at the credit union and take the check to the dealer. And, like I mentioned earlier, auto loan rates tend to be lower than home equity loan rates. If you get the tax advantage, it pays for itself. If you don’t get the tax advantage, you’re usually better off with an auto loan.

Neighborhood offers both types of loans. Consider us when you purchase your next vehicle.