| One thing most people rarely consider when looking to purchase a new vehicle is using a home equity loan to buy a car. Home equity loans are an easy and tax-deductible means of using your house as a source of cash for major purchases. After all, how many auto loans do you know of that allow you to write off the interest? Home Equity Loan vs. Auto Loan: What's the Difference?
A traditional auto loan is taken out at a local car dealership or bank. It has a fixed interest rate and demands a combination of both principal and interest in each payment. In this type of loan the interest is front-loaded, meaning that during the first few years you pay off more interest than principal. Unlike an auto loan, using a home equity loan for a car allows you to deduct this interest from your taxes. How Can I Deduct My Loan?
It is possible to deduct up to $100,000 worth of interest payments on your federal tax return, so it makes sense to move a car loan, whose tax is not deductible, over to a tax-deductible home equity loan for a car. Of course, all borrowers have different financial circumstances, so be sure to consult your tax advisor regarding your ability to deduct interest before taking out a home equity loan to buy a car. Today's Low Rates
Because today's rates are at historic lows, there's never been a better time to use a home equity loan for a car or to save money on other large-ticket items. Like everything else in the economy, rates are cyclical. Ultimately they will rise, so it might be wise to lock in your loan before the inevitable happens.
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