Yes, you can technically use a Home Equity Line of Credit (HELOC) to buy a car. However, for most people, it's a financially risky move that is not recommended. While a HELOC might offer a lower interest rate compared to a traditional auto loan, you are fundamentally different: you are converting a depreciating asset (the car) into debt secured by your appreciating asset (your home). If you fail to make payments, you risk foreclosure.
The primary attraction is the potential for a lower Annual Percentage Rate (APR). As of late 2023, HELOC rates might be in the 8-9% range, while auto loan rates for borrowers with good credit can be similar or even slightly lower. The table below illustrates a hypothetical comparison for a $35,000 loan over 60 months.
| Loan Type | Approximate APR (Good Credit) | Monthly Payment | Total Interest Paid | Key Risk |
|---|
| Auto Loan | 7.5% | $701 | $7,060 | Car is collateral; repo if default |
| HELOC | 8.5% | $718 | $8,080 | Home is collateral; foreclosure if default |
The critical difference is the collateral. An auto loan is a secured loan where the car itself is the collateral. If you stop paying, the lender repossesses the car. With a HELOC, your home is the collateral. Defaulting puts your homeownership at risk. Furthermore, HELOCs often have variable rates, meaning your payments can increase over time, unlike a fixed-rate auto loan.
A potential tax benefit is often discussed, but it's largely irrelevant for most Americans. The Tax Cuts and Jobs Act of 2017 eliminated the deduction for interest on home equity debt unless the funds are used to "buy, build, or substantially improve" the home that secures the loan. Using a HELOC for a car does not qualify.
You should exhaust other options first. Consider a credit union for competitive auto loan rates, a personal loan, or even delaying the purchase to save a larger down payment. Using a HELOC should be a last resort, reserved for situations where the financial stability of your home is not in question.
