vehicle financing

[crabbypatty]

DH and I were talking today about financing for our next vehicle. We have car funds but they won't cover the whole cost of a car in cash. DH has a car "thing" and cars are his greatest luxury. Our compromise is that he buys them at auction.

Last time he got a used car loan. But we were wondering if a home owners loan would be a cheaper rate? We have more than enough equity in the home to qualify. He thought that maybe you needed to take out 30k for a home owners loan. I'm not sure where he got that figure.

But we don't want to spend 30k on a car, so taking out a loan for that much is worthless unless we could take out that amount, then immediately pay back the difference between price paid and the loan toward principal.

Are their fees associated witrh early payback of homeowners loans? Are the rates usually better, or should we just stick with a used car loan?

[jIM_Ohio]

you could get a HELOC, which behaves more like a credit card... it's a revolving credit line with tax deducatable interest.

I would not suggest putting home at risk for a depreciating asset (car).

[cschin4]

Personally, I would not "use my house to pay for a car". We have paid off our mortgage and plan to keep it that way. And, why not just finance? The rates are especially good on a new car. If you buy a used car, the rate is higher. I think sometimes it is just worth the difference to go ahead and get a new car and the interest saved is applied to the car.
As for paying in cash, I just don't see the point. I paid cash for my last car. And, then we financed our second car at 4%. I am glad my car is paid off, but I think there are better uses of the money. And, we can all get into the used vs. new debate. I think one can just as easily overpay for a used car as well. And, I chose new because of the warranty, etc. Just my opinion.

[crabbypatty]

I think HELOC was the term I was looking for. If rates on a HELOC are variable, that means it won't necessarily beat out a used car loan, right?

I'm looking for the best rate. But maybe a HELOC is more complictaed than I'm willing to get into. I don't understand the difference between borrowing against the home and borrowing against (what?) for a used car loan. Even in the worst absolute case, we are about 60% equity on the home so our home wouldn't be at risk.

You're only using you house to pay for your car if you default though right? It's not like I'd be cashing in equity to hand over for the car. I was thinking the HELOC was a loan aginst the home just in case you can't pay.

[jIM_Ohio]

Originally Posted by crabbypatty

I think HELOC was the term I was looking for. If rates on a HELOC are variable, that means it won't necessarily beat out a used car loan, right?

I'm looking for the best rate. But maybe a HELOC is more complictaed than I'm willing to get into. I don't understand the difference between borrowing against the home and borrowing against (what?) for a used car loan. Even in the worst absolute case, we are about 60% equity on the home so our home wouldn't be at risk.

You're only using you house to pay for your car if you default though right? It's not like I'd be cashing in equity to hand over for the car. I was thinking the HELOC was a loan aginst the home just in case you can't pay.

HELOCS are a "second lien" on the house and are "open lines of credit" similar to a credit card. There are good things and bad things about HELOCs.

pro: It's a line of credit with tax deductable interest
pro: it's equity in your house, and not a "fixed" amount per se

con: it allows people to reduce equity to purchase non appreciating assets
con: interest rates are usaully variable
con: terms for a HELOC may not be fully known unless person asks. For example, I had a HELOC on a house which was a 15 yr ARM prime+1 interest rate... and what I learned is payment was interest only for 5 years, then ballooned to a 10 year ammortization payment the last 10. Shame on me for not knowing at the time, I know now.

If you take a second mortgage out (similar but different), once the second mortgage is paid off, you have "no accesss" to the equity until you open a HELOC.

A HELOC to some is an emergency fund. It "can be" $50,000-$100,000 in available credit, which is actually "real assets". The issue is the real asset (house) in generally illiquid.

Costs $50 a year to keep credit line open... and one can tap into it as though it were cash reserves. Gaining a tax deduction in the process.

[Ima saver]

My husband has a "thing" also for cars. We just finance. I started a car fund last year and hope to have a big down payment for the next one.

[th_tan]

If you want to save money, a home loan is your cheapest way to buy a car in most cases. Just make sure you can afford more payments before you take out any loans.