My husband thinks that taking out a home equity loan for car is a wiser thing to do than getting a car loan. I beg to differ!
Roughly five years ago, I bought a brand new Altima from my credit union at 4.9 percent interest. It was a five-year loan that I managed to pay off in four years. I know a home loan is tax-deductible, but in the long run is it better than simply taking out a car loan with a much better interest rate?
Even more troubling, what if we buy the car with a home equity loan and realize we can't pay the loan back?
-- Certain Cheryl
A: Dear Cheryl,
Although in general I agree with your husband, you've gotten down to the crux of the matter. You're better off with the auto loan if you can get a better rate from your credit union on an auto loan than the effective rate of interest on the home equity line or home equity loan. You may have gotten a lower rate with your credit union loan, making it the better decision for you.
A while back, I worked with The Washington Post's nationally syndicated columnist Michelle Singletary on a calculator that compared the different types of loan options to estimate which loan would give you the lowest total interest cost on an after-tax basis. The "What's the best way to finance a car purchase?" calculator is still available on Bankrate.
