How to use a home equity loan to buy a car
Your household will see many cars come and go, and your home could be added funds to put you in your dream car.
If you’re wondering how to pay off a car loan, or secure funds to buy a car, look no further than the house where you and your family live. Your home is a key asset to help you finance large purchases and secure favorable interest rates. Home equity loans offer fixed, low interest rates and are largely based on your home’s value and equity.
Home equity loans are especially useful when you have a low credit score. Since the loan is secured by your home, you may be able to qualify with a lower FICO score.
How home equity loans work
To make the right decision, you’ll need to compare your options and look for the pros and cons relative to your financial situation. Here are some of the key factors to consider with Discover Home Loans:
- Fixed rates from 6.99% - 12.99% APR* for second liens
- Terms of 10, 15, 20 or 30 years
- Home equity loans from $35,000 - $300,000
- No application, origination, or appraisal fees, and no cash is required at closing
* The APR will be between 5.99% and 9.99% for first liens and 6.99% and 12.99% for second liens based on loan amount and a review of credit-worthiness, including income and property information, at the time of application. The lowest APRs are available to borrowers requesting at least $80,000 for second liens or $200,001 for first liens, with the best credit and other factors. Loan amounts available from $35,000 to $300,000.
How typical auto loans work
The typical auto loan offers:
A set interest rate - rates depend on the lender
Shorter repayment schedule than most home equity loans
Different characteristics of each loan will be important to consider based on your specific situation. However, it is always worth noting if the auto loan you qualify for has a prepayment penalty. Depending on the size of your initial loan, these penalties can be significant.
Using home equity loans to pay off high-interest car loans
The comparison between an auto loan and home equity loan should be made between the interest rate, fees, and terms.
If you have an older auto loan, you may have a loan with a higher interest rate than what today’s home equity loans offer.
The terms of a home equity loan are often a little easier on your budget, giving you a much longer term to repay the loan if you’re looking for a reduction in monthly costs. While this may raise the amount you pay over time, it can prevent you from dipping into savings or running up credit cards when you find it difficult to make your car payment.
See if a home equity loan can finance your car
Talk to a financial advisor for help determining what rates are available to you and what you should know about choosing equity as a way to pay off a car loan faster. One place to start is by considering the benefits that are unique to a home equity loan.
To learn if a home equity loan is right for you, talk to a Discover Personal Banker at 1-855-361-3435, or request a no-obligation quote online and we’ll call you back.
Pros and cons of using a home equity loan to purchase a vehicle
As you evaluate home equity loans vs. auto loans when financing your vehicle, consider these benefits and risks.
Longer term lengths
While most auto loans are spread out over 5- to 7-year terms, Discover’s home equity loans offer terms of 10, 15, 20, and 30 years. Longer term lengths will mean lower monthly payments.
Competitive interest rates
Discover’s home equity loans offer low, fixed rates that are competitive with the average auto loan rates. See our current rates here. Lower interest rates could translate to lower interest charges over the life of the loan.