Dear Terry,

Is it a good idea to finance a new vehicle on a home equity line of credit?

— Jane

Dear Jane,

It’s generally not a good idea to finance any depreciating asset, but few of us have enough cash in the bank to cover the cost of a new car. I still would not tap into my home’s equity to buy a car, for several reasons:

First off, rates for new car loans for borrowers with good credit are within a few points or less of the average home equity loan. So, the equity loan is not that much of a bargain.

Also, if you extend the equity loan out to more than five years, you’re going to wind up with a very used vehicle that will still be covered in substantial debt.

Lastly, if something happens and you can’t make the payments, your house would be the first asset in jeopardy if you used home equity to pay for the purchase.

If you have a question for Terry, e-mail him at Driving for Dollars. Save money on your car — sign up for Bankrate’s new weekend Car & Money newsletter.

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