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View Full Version : Home Equity or Auto loan?



achen
07-08-2007, 08:24 PM
One month away from delivery, it's time for me to collect the money. However I am still indecision between home equity and auto loan.

- I will drive the car more than 15K miles every year, and I am preparing to keep it for at least 5 years. Already worked out the mystery between purchase and leasing, and decide to purchase it.

- Sales price of the car after negociation is around $55,000

- I have $21,000 cash ready for down payment

- Rate for my HELOC is 7.74%, all intrest payments are tax deductable but I don't know how much the "REAL" rate equals to, after the deduction it helps me to earn back.

- The best rate for Auto Loan I could get is probably around 6.60%

So, is it better to get $$ from Home Equity, pay it off up front, or use Auto loan?

ClarkGriswold
07-11-2007, 10:57 AM
For myself, I always struggle with the idea of using money from an appreciating asset to pay for a depreciating item.

I understand your logic, but I wouldn't do it from the Home Equity.

First Audi
07-11-2007, 05:10 PM
I don't think it matters if you're taking a home equity loan off your "appreciating asset"...either way you're paying the payments. Assuming you're paying 25% net taxes...if the Home equity loan rate is less than 25% higher than the car loan, you're probably better off. (All other things equal with your tax situation)

If you need the tax break and differential is small enough, I'd go with the home equity. Just my thoughts...but heck I'm not your tax accountant.

Enjoy the new Q.

LORDOFTHERINGS
07-12-2007, 08:31 PM
For myself, I always struggle with the idea of using money from an appreciating asset to pay for a depreciating item.

I understand your logic, but I wouldn't do it from the Home Equity.

I have to agree with you. The money from the equity in your home is typically used for home improvements or bill consolidations. (Preferably home improvements, which will boost the value of your home.) When you start screwing around with that money for dumb shit, you could be making a huge mistake.

achen
07-12-2007, 09:23 PM
I have to agree with you. The money from the equity in your home is typically used for home improvements or bill consolidations. (Preferably home improvements, which will boost the value of your home.) When you start screwing around with that money for dumb shit, you could be making a huge mistake.

However, what's the difference between

(A) getting a car loan at higher intrest rate, and

(B) borrowing the money from equaity, with a lower intrest rate, and make the same payments toward it every month?


You still owe the same amount of money, but in (B) you will be paying less intrest and the minimum monthly payment is more flexible. Why is B a smarter choice, and A would be a a huge mistake?

LORDOFTHERINGS
07-13-2007, 07:30 PM
I guess the real question is do you intend to stay in your home for a relatively short amount of time or do you intend to be there for a long time.

If you are going to be there for life, I would say to go for the HE Loan.

But if you're like most of us who are in our homes just long enough to make a profit out of it, then I would say to ditch the idea of the HE Loan and just save yourself some money for a while and put a bigger down payment on it. That way you can eat and own the car at the same time.

Johnnie
07-16-2007, 03:21 PM
Get a car loan. Most HELOCs are based off Prime and is an adjustable, unless you have one of those new fixed rate lock options. If your HELOC is an adjustable, you're at the mercy of the market. Rates are steadily increasing, and although Prime has been pretty steady for the past year, they've doubled from about 3 years ago, and has been as high as 9.5 in 2000.

I don't know too much about tax deductions but i think you get a tax deduction for car loans as well. I know I give my accountant my interest statement for my car loans every year. Hope that helps