Fincar July 27, 2019 No Comments

In the property market, it’s not all that uncommon to use the equity you build up from paying down your home loan to fund another property. In effect, the equity is used as an asset, which is then put up as collateral for the next asset in your sights. This strategy can be extended to vehicles, with your home equity utilised to purchase a new car. So now that we’ve cleared that matter up, the more pertinent question is, should you do this? Let’s consider the pros and cons.

The upside to using home equity to purchase a new vehicle

If you’ve already gone through the process of applying for a home loan, and having all your finances scrutinized in minute detail, you’ll know that it’s an arduous and nervous time. It is also a query that will be reported on your credit report.

The good thing is, by using your home equity to buy a car, you avoid the need to undergo another credit check. So whether you’ve previously been rejected by a financier, you’re concerned about your credit score, or you just wish to avoid another query being made against your record, you’ll breathe a sigh of relief on this front.

It’s also worth pointing out the convenience that comes with using home equity to purchase a new car. You will save time from having to go through the process of locating a lender or broker to help you apply for a loan. Instead, you can leverage the equity you have already accumulated to make your purchase.

The downside to using home equity to purchase a new vehicle

While it’s certainly useful to leverage your accumulated home equity, it does come with its own risks and complications. First, make sure you are familiar with the fees involved, because redrawing from your home loan can certainly hit your hip pocket. After that, it becomes more difficult to accurately distinguish between the loans you have, and the amount outstanding for each.

You’ll also pay significantly higher interest costs because of the fact that you are drawing down your equity to build up more debt. The timeframe in which you pay back the car aligns with the home loan, meaning a far longer term. And since the funds are pooled, like mentioned earlier, you don’t have any meaningful mechanism to otherwise pay down just the car component. Should you wish to resell the vehicle, be wary about how buyers might receive this news.


What’s best for me?

There is no one answer to whether you should use your home equity to buy a car. As outlined above, there are both positives and negatives. It is however, likely to favour those who are looking for convenience, but more importantly, have the skills to manage their cash flow effectively and the administration with what is effectively two loans pooled into one. This is easier said than done, so it’s worth considering the costs – direct and from a time perspective. Speak with a car loan broker today.


The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.