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The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: Westend61/Getty Images March 14, 2022 Raija Haughn is an associate writer for Bankrate.com specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term. Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our home equity reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, different types of home equity options and more — so you can feel confident when you make decisions as a borrower or homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you are struggling to make your car payments and have equity built up in your home, you may be tempted to use a home equity loan to pay off your vehicle. While home equity loans do typically come with more flexible terms and lower interest payments than auto loans, it can be risky to use this type of loan for vehicle debt. Some risks include decreased home equity, high closing costs and potential foreclosure if you don’t pay off the loan. Longer repayment terms could also mean you end up paying off the loan past the life of your car. If you are already struggling with your car payments, adding another loan could send you further into debt in the long run. Before using a home equity loan to make your car payments, evaluate if this is the right choice or if an alternative would be better. Should I use a home equity loan to pay off my vehicle debt
While you can use a home equity loan to pay off your vehicle debt, it is generally not advisable. Home equity loans have terms generally ranging from five to 30 years. A car’s market value begins depreciating the moment it leaves the lot, meaning you could pay way more than your car is worth by the time you finish paying off the home equity loan. You must also consider that when you take out a home equity loan, you are putting your home up as collateral in case you are unable to repay what you owe. Your home could end up in foreclosure if you do not pay back the loan. Benefits of using a home equity loan to pay off vehicle debt
Flexible terms: Home equity loans generally have more flexible loan terms than auto loans. Home equity loan term lengths range from 5 to 30 years while car loan term lengths range from 3 to 7 years. Lower interest payments: Home equity loan interest rates tend to be less than auto loan interest rates, and if you have good credit you may qualify for rates as low as 3 percent. Risks of using a home equity loan to pay off vehicle debt
Loss of home equity: When you use your home equity to secure a loan, it decreases the total amount of equity you have available in your home. If you have not paid off the loan by the time you sell your house and the amount you owe on that loan, your mortgage and any other home loans are more than your house is worth, you could go upside down on your mortgage. Closing costs: Some lenders charge upfront closing costs ranging from 2 percent to 5 percent of the loan amount. These charges combined with interest could have you paying more, despite lower interest rates. Longer repayment terms: Even though having a longer repayment term lowers your monthly payments, it also means that your loan could outlive your car. You could even end up paying off the loan for the old car while trying to finance the new one. Risk of foreclosure: If you are unable to make your monthly payments and get too behind on the debt, the lender can sell your home in order to recover the money you owe. Alternative ways to pay off your vehicle debt
Given all of the risks associated with using a home equity loan to pay off auto loan debt, it is generally best to try before tapping into your home equity. If you can’t make your monthly payments, you can try refinancing your loan, renegotiating, or selling your vehicle. Refinance your loan: You may qualify for lower interest rates in refinancing, especially if your credit score has improved since you initially financed your vehicle. Refinancing does, however, come with fees that borrowers should be wary of. Renegotiate the loan: Lenders are often willing to renegotiate loans, particularly if you have good credit history and only need short-term assistance. Getting a payment deferred or stretching out the loan term could give you the time you need to get your payment together. Sell the vehicle: If you ultimately decide you can’t afford the car, you can sell it with the lender’s permission or trade it in with the dealership with which you’re financing. You will still be on the hook for the balance you owe, but it could relieve some of the financial burden. The bottom line
Cash-strapped homeowners falling behind on their car payments might look to home equity loans as a solution. The flexible terms and lower interest rates are appealing. However, using home equity as collateral is always risky, and the constantly depreciating value of the vehicle could make it not worth it to take out a 5- to 30-year loan. However, transportation is a necessity. Many can not afford to lose or sell their vehicle. If you feel that taking out a home equity loan to pay off your vehicle debt is the right choice for you, research the and choose a lender that fits your needs. SHARE: Raija Haughn is an associate writer for Bankrate.com specializing in personal and home equity loans. She is passionate about helping people make financial decisions that will benefit them long term. Aylea Wilkins is an editor specializing in personal and home equity loans. She has previously worked for Bankrate editing content about auto, home and life insurance. She has been editing professionally for nearly a decade in a variety of fields with a primary focus on helping people make financial and purchasing decisions with confidence by providing clear and unbiased information. Related Articles