Home Equity Loan to Buy Car – Is It Possible?
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MoneyNerd introduces enquiries to The Debt Advice Service and may receive a referral fee. For free, independent guidance and help finding a debt adviser, visit MoneyHelper.
This information and enquiry service is not a full financial assessment or a guarantee of suitability or debt write-off. Debt solutions are not suitable for everyone. Fees may apply, and your credit record and assets may be affected. Get advice on your circumstances before choosing a solution.
Are you thinking about using a home equity loan to buy a car? You’re in the right place to learn more. This type of loan lets you use the value of your home to finance a vehicle.
We’ll help you understand:
- How a home equity loan works
- If you can use this loan to buy a car
- The good and not-so-good bits about using a home equity loan
- Other ways to use a home equity loan
- How much money you can borrow
We know this topic can be tricky, but we're here to help you understand it better.
Can I use equity as collateral for a loan?
A home-secured loan uses the property as security. Available borrowing depends on combined loan-to-value, affordability and the lender’s criteria.
The loan is secured on the property. Missed payments can lead to repossession through the applicable legal process; security does not remove affordability checks or give the lender an automatic right to take the home without that process.
An existing first charge normally has priority over a second charge, subject to the legal arrangements.
Sale proceeds are not guaranteed to cover the debts and sale or enforcement costs. A shortfall can remain payable even if there was equity before those costs.
Can I borrow against my home for a car?
Some lenders permit borrowing against a home for a car, but check the purpose and affordability. The risk is to the home, unlike vehicle finance where the vehicle may be the asset at risk.
There are different types of secured loans that will allow you to do this.
Explore secured loan options
Enquire about secured loan options
Advertisement. Your home may be repossessed if you do not keep up repayments on a loan secured against it.
Loans Warehouse is a credit broker, not a lender. You can enquire about options based on your circumstances. Approval and terms depend on lender checks; an enquiry is not a guaranteed offer.
Compare the interest rate, fees, monthly payments and total amount repayable. A longer repayment term can increase the overall cost. Consolidating unsecured debts into a secured loan puts your home at risk.
MoneyNerd introduces enquiries to Loans Warehouse and may receive a referral fee. Broker and lender fees may apply and should be explained before you proceed.
Credit options to buy a car with home equity
Potential UK options, subject to approval and permitted purpose, include:
- Home equity loan
- A further advance from the existing mortgage lender
- Remortgaging and extending your borrowing
Can you use a home equity loan to pay off a car?
Refinancing a car loan with home-secured borrowing may be possible, but obtains new debt and can change the asset at risk. Get the car-finance settlement figure and check the agreement before proceeding.
Compare both sets of fees, any early-settlement costs and the total amount repayable. Do not assume a US-style closing-cost percentage applies.
A lower rate or monthly payment can still mean a higher overall cost if the term is extended. A car may depreciate or need replacing while the home-secured debt remains outstanding.
Can you buy a car with a home improvement loan?
A home improvement loan offers credit for the homeowner to make home improvements. As the name suggests, they won’t be suitable to buy a new car.
However, many banks and lenders offer the same secured loans but rename them for different purposes to attract more attention, such as a home improvement loan.
Check the permitted use of the actual loan. A product marketed for improvements is not automatically available for buying a car.
Home equity loans Vs car loans
Neither car finance nor home-secured borrowing is always cheaper. Compare the same amount and realistic term, total repayment and which asset is at risk.
Include broker, arrangement and settlement charges and any final or balloon payment when comparing costs.
You might want to speak with a broker who can assess you for the current auto loans on the market and what type of home equity products you could get.
Can you use a HELOC to buy a car?
A US-style home equity line of credit (HELOC) should not be assumed to be a standard UK product. Any UK revolving or drawdown secured facility has its own availability, fees and payment terms. Check whether interest or capital payments are required during the drawdown period and how the balance must be repaid.
But which is better?
Home equity loan or HELOC – what’s best for car purchases?
A revolving or drawdown facility can be useful for some purposes where:
- You’re not entirely sure how much you need
- You want to stage payments to help with budgeting during a project
They’re not especially useful when buying a car because you’ll probably know how much the car will cost and therefore how much you need. Moreover, it will be a single purchase rather than something paid for in stages.
The choice depends on verified product availability, costs, required payments and affordability. A staged facility is not automatically suitable for a single car purchase or for combining unrelated spending.
