BY JELANI DANIEL
Home equity loans are a growing trend among vehicle buyers, but are they really the best option for your budget? Rates and stipulations may be different from person to person, but by understanding the basic risks and benefits, you can make a better decision in the long run.
DO LOW INTEREST RATES MEAN LOWER PAYMENTS?
Lower interest rates on a home equity loan can be an attractive feature, but the length of the payments may extend beyond the ten year mark. By looking at both the interest rate and the length of the payback period, you can see if vehicle financing is a more suitable option. Typically, auto financing has a higher interest rate but the payback period remains under the five year mark, or possibly less if you have a higher initial deposit.
YOUR HOUSE IS PART OF THE LOAN:
This simple statement carries heavy weight and is a large factor to consider when applying for a home equity loan. Your property is now part of the loan agreement, bringing both your vehicle and house as items that can be repossessed due to a failure to pay. With an auto finance structure, only you car and credit are affected by a failure to pay.
WHAT ARE THE INCENTIVES?
The largest incentive would be deductible payments on your taxes. This may help lower your housing costs in the long run, but be sure that the interest rate will not cost you more than you are saving each year on taxes. Being aware of the interest structure and annual tax rates can help you better understand how much you can save on taxes versus how much you will spend on your loan.
Overall, there are rewards to a home equity loan including the ability to save money on your taxes and pay lower interest rates. Although there are pro’s, it is always valuable to ensure that you understand the impact of the loan on long terms costs and assets that could get repossessed. Even after a car is sold or unusable, you may still be paying for the loan since the payback period is extended beyond a typical auto finance period.
To find out if a home equity loan is right for you, you can research the topic in greater detail or speak with a professional about the options available to you. Being fully informed is the best way to minimize risk and maximize your savings.