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How to Lower Your Car Payment Using a Home Equity Loan

If you own your own home and have built up equity over the years, getting a home equity loan to finance your car purchase may be a good option.

One of the main advantages of a home equity loan is that the interest is tax-deductible on up to $100,000 worth of borrowing.

For example, if you're in the 28% tax racket and the loan has an annual percentage rate of 7%, your effective rate after taxes comes out to 5.04%.

But a word of caution: If you don't have the discipline to pay more than the minimum payment on a home equity loan, then it's not a good idea to get one.

If you stretch out your car payments over 10 years or more, you're going to end up paying more in interest than if you had taken out a regular car loan.

Another disadvantage: If you can't make payments on the car, not only is your vehicle at risk, but so is your home since you put it up for collateral.

If you're unsure whether you can pay off the loan, don't even think about getting a home equity loan.

My Recommendation for Car Shoppers

TrueCar No-Haggle and Edmunds Price Promise are the quickest way to see the lowest car prices in your area. These sites show you no-haggle prices from dealers closest to you - and the deals are usually really good. This should be the first step you take when negotiating your car price. Follow this up with my checklist to make sure you squeeze out every last bit of savings.
- Gregg Fidan

Gregg Fidan

About: Gregg Fidan

Gregg Fidan + is the founder of RealCarTips. After being ripped off on his first car purchase, he devoted several years to figuring out the best ways to avoid scams and negotiate the best car deals. He has written hundreds of articles on the subject of car buying and taught thousands of car shoppers how to get the best deals.

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