Should you sign a car loan to buy a car?

Tara Baukus MelloQuestionDear Driving for Dollars,
Should I buy a car using the money from my home equity line of credit, get a loan or use savings?
-- Suzanne

AnswerDear Suzanne,
It depends on what interest rate you'll be paying on the car loan and the home equity line of credit, or HELOC, as well as the interest rate you are earning on your savings. Compare the rates to see what makes the most financial sense. Remember that the interest on the HELOC is often tax-deductible. Bankrate's car loan-home equity calculator can help you determine whether the auto loan or HELOC is the better deal.

Also think about your future financial situation and whether you might be strapped for cash. Depending on your situation, you may need that cash savings, while a high debt in your HELOC could lead to a default, causing you to lose your home. By getting a separate car loan, you are more insulated from your car purchase affecting other areas of your life, should you run into financial problems.

Ask the adviser

If you have a car question, e-mail it to us at Driving for Dollars. Read more Driving for Dollars columns and Bankrate auto stories.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

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