The Advantages of Using a Home Equity Loan to Buy a Car

Taking out a home equity to buy a new car can seem like a good idea, but there are a few drawbacks that any consumer who is considering this option should think about. While home equity loans can have lower interest rates than some conventional car loans, lower monthly payments, and can give the borrower the ability to take out more money than they otherwise would qualify for; they also require a borrower to take on a lot more risk, are harder to obtain, and can have long-lasting repercussions on a credit score.

The main reason that many people choose to take out a home equity loan to finance a vehicle purchase is because they believe that they will get a better interest rate, they can get a bigger loan, and/or that they can extend their payments. By doing this, they could pay less every month and get a bigger or better car.

A home equity loan is usually taken out at the same interest rates that mortgages are taken out for. Since mortgage interest rates are currently at record lows, there are many people who are taking advantage of these deals to make major purchases such as automobiles.

There are a lot of people who will even take out these loans as a way to finance a vehicle that they cannot get a conventional auto loan for. In general, a bank will prefer for a person's total transportation expenses to go no higher than twenty percent of his or her total salary. Of course, the exact amount varies between banks. Nonetheless, a home equity loan allows a person to borrow from his or her home's value, and home mortgage payments are usually capped around thirty three percent of a person's salary. Because of this a person can generally borrow more through a home equity loan than they can through a standard auto loan.

Finally, payments for home equity loans can be spread out over several decades. A conventional auto loan term is usually between three and seven years. By spreading out payments over a longer term, each payment is reduced. This means that a person could pay off a vehicle over many more years, giving them the ability to afford a more expensive car or truck than they would otherwise be approved for.

Short-term loans are emergency credit products of relatively small amounts designed for short-term financial issues only and can become an expensive product if used for long-term purposes.

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APR Representative
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Late Payment Implications
It is highly recommended to contact the lender if late payment is expected or considered possible. In this case, late payment fees and charges may be implied. Federal and state regulations are determined for the cases of late payment and may vary from case to case. All the details concerning the procedures and costs associated with late payment are disclosed in loan agreement and should be reviewed prior to signing any related document.

Non-payment Implications
Financial and non-financial penalties may be implied in cases of non-payment or missed payment. Fees and other financial charges for late payment are to be disclosed in loan agreement. Additional actions related to non-payment, such as renewals,may be implied upon given consent. The terms of renewal are to be disclosed in each loan agreement individually. Additional charges and fees associated with renewal may be applied.

Debt collection practices and other related procedures may be performed. All the actions related to these practices are adjusted to Fair Debt Collection Practices Act regulations and other applicable federal and state laws in order to protect consumers from unfair lending and negative borrowing experience. The majority of lenders do not refer to outside collection agencies and attempt to collect the debt via in-house means.

Non-payment and late payment may have negative impact on the borrowers’ credit standing and downgrade their credit scores, as the lenders may report delinquency to credit bureaus, including but not limited to Equifax, Transunion, and Experian. In this case the results of non-payment and late payment may be recorded and remain in credit reports for the determined amount of time.