Home Equity Loan to Buy Car – Is It Possible?

Are you thinking about using a home equity loan to buy a car? You’re in the right place to learn more. This type of loan lets you use the value of your home to finance a vehicle.

We’ll help you understand:

•  How a home equity loan works
•  If you can use this loan to buy a car
•  The good and not-so-good bits about using a home equity loan
•  Other ways to use a home equity loan
•  How much money you can borrow

Each month, over 6,900 people visit our website to learn about secured loans; you’re not alone! We know this topic can be tricky, but we’re here to help you understand it better.

Can I use equity as collateral for a loan?

Yes, you can use home equity as collateral within a credit agreement. By securing the loan with home equity, you might be able to borrow more or access a more competitive interest rate.

If you use your home equity as collateral and default on the loan, the lender can force the sale of your home to clear the debt.

If you have an existing mortgage on the same property, the mortgage provider is considered the senior lien of credit and has the right to clear their debt before the other equity loan provider can clear theirs. 

It shouldn’t be an issue to clear both debts with the sale proceeds, as long as the homeowner doesn’t have negative equity in the property. 

Can I borrow against my home for a car?

It’s possible to borrow against a property or home equity and use the credit to purchase a new or used car. Getting approved for credit will depend on the equity you have in the property and the lender’s criteria. Your credit score will also be considered. 

There are different types of secured loans that will allow you to do this.

Credit options to buy a car with home equity

There are three common ways to use your home equity to access credit and buy a car, namely:

1. Home equity loan
2. Home equity line of credit (HELOC)
3. Remortgaging and extending your borrowing

Can you use a home equity loan to pay off a car?

It’s possible to use a home equity loan to pay off an outstanding car loan or other types of credit used to buy a car. You would simply apply for the home equity loan and use the funds to clear the existing car loan debt.

This would be considered a form of debt consolidation, which is one of the most common reasons people take out a home equity loan product. When following this process, you need to be aware of any charges and fees, such as closing costs and early repayment costs on the auto loan. 

By consolidating other debts against your home, you can reduce the number of creditors you have to deal with, and you may also save money by securing a better interest rate and lower monthly payments. 

Can you buy a car with a home improvement loan?

A home improvement loan offers credit for the homeowner to make home improvements. As the name suggests, they won’t be suitable to buy a new car. 

However, many banks and lenders offer the same secured loans but rename them for different purposes to attract more attention, such as a home improvement loan. 

They’re likely to offer the same type of secured loan which isn’t restricted to home improvements, and you will be able to use it to buy a car.

Home equity loans Vs car loans

So, is it better to use an auto loan or a loan secured by home equity? Home equity loans usually offer better interest rates because the property is secured in the agreement and the lender knows it would be easier to recover a defaulted loan.

Yet, it’s important to consider all your options before making a decision, and you should pay special attention to additional fees and charges, including loan closing costs. 

You might want to speak with a broker who can assess you for the current auto loans on the market and what type of home equity products you could get. 

Can you use a HELOC to buy a car?

Yes, just like a regular home equity loan, a HELOC could also be used to fund a new car purchase. 

But which is better?

Home equity loan or HELOC – what’s best for car purchases?

HELOCs are beneficial when you need a significant loan and:

1. You’re not entirely sure how much you need
2. You want to stage payments to help with budgeting during a project

They’re not especially useful when buying a car because you’ll probably know how much the car will cost and therefore how much you need. Moreover, it will be a single purchase rather than something paid for in stages. 

For these reasons, there is no immediate benefit in choosing a HELOC over a home equity loan to buy a car. However, you might want to buy a car and use some additional money for something else, such as home improvements. In these cases, a HELOC may still be worth considering. It all depends on your personal situation.