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Purchasing a Car With a Home Equity Loan?
It may sound strange, but it is possible to purchase a car by using the money obtained from a home equity loan and you may end up saving a lot of money in the long run by doing so. Home equity loans compared to car loans are inexpensive sources of finance and also, they are a lot easier to qualify for. Thus, if you have equity left on your home and you are planning on buying a car, keep on reading.
A home equity loan has no specific purpose and thus can be used for purchasing anything you want or need. In this case, you can use the money to buy a new or used car and by doing so, youd be reducing the interest rate you will pay for the money borrowed. Though car loan and home equity loan are both secured loans, the loan conditions of home equity loans are more advantageous.
Benefits Of Equity
Equity can provide a lot of benefits when you need to borrow money. Home equity constitutes better collateral than a car and thus the financial transaction backed up with home equity implies less risks for the lender. Thus, you will be able to obtain better interest rates and better loan terms like higher loan amounts, longer repayment programs and lower monthly payments while saving money in terms of interests at the same time.
Also, equity as collateral has less possibilities of destruction or damage compared to a car. Thus, the costs on insurance will be significantly lower. Anything that reduces the risk in the financial transaction pushes the interest rate down because the rate is the way the lender compensates for the risk that lending money entails.
Moreover, for the same reasons expressed above (the risk reduction on the loan transaction) the requirements for approval will be lessened. When it comes to credit requirements, truth is that as opposed to car loans, if you have equity left on your home you can obtain financing even if you have extremely bad credit, no credit at all or a bankruptcy on your credit history.
Disadvantages Of Using Home Equity Loans
The main problem of using your home equity for purchasing a car, is that the means are way above the purpose. It is just like using a bazooka to kill an ant. Thus, if you ever need to resort to this form of financing for other purposes like making home improvements or consolidating debt, you may find difficulties because you have already obtained a home equity loan for purchasing a car.
The other problem, maybe the most serious one, is that since home equity loans use the equity that is left on your home as collateral for the loan, you are risking repossession of the property if you even fail to repay it. It works just like mortgage loans. In the event of defaulting on the loan, the lender has the legal right to seize the property and sell it in a public auction in order to claim the money lent. Thus, you should make sure that you will be able to afford the monthly payments.
Cheap Home Loans
Simply put, the “cheapest” home loan or mortgage is the one that costs you the least over the term of the loan taking into account interest rates, fees and penalties. If you are looking for a cheap home loan deal, here are some tips that could save you time and money:
Dont assume that your trusty bank of 20 years is going to give you the best deal today because they offered you a great deal the last time you needed a home loan. Today, there are a lot more home loan options than there used to be.
There are hundreds of home loan products available and shopping around could save you tens of thousands of dollars. The Internet has made comparing home loans fast and easy. With todays online mortgage comparison tools, it is possible to identify a list of potentially suitable home loans in a few minutes. Comparing home loans with the aid of these advanced tools is the smart and convenient way to find you ideal home loan.
Nowadays, prospective borrowers are bombarded with marketing claims of “discounted” or “low” rates. Often these so called “discount rates” may only be introductory offers or come with other fees and conditions in the fine print. It is important to look beyond the headline rates and see what you are actually getting. A good comparison tool could help you see beyond the hype and hidden costs.
Consider your particular circumstances carefully. One home loan product may be ideal for one borrower but may not be the best option for another. The terms and features specific to each loan product could make a huge difference to their cost over the term of the loan.
One way to reduce accrued interest is to make biweekly repayments rather than monthly repayments. An even better way to reduce interest is to take advantage of the offset feature offered by many lenders. Offset facilities allow you to deposit your spending money into a linked account, whereby the balance is subtracted (offset) from the home loan principal. This is especially beneficial if you have significant amounts of money coming into your accounts on a regular basis.
Redraw facilities, if used effectively, could also save you a great deal of money over the term of your mortgage. Every time you receive a lump sum of money or have any money left over, you could deposit it into your mortgage account, reducing the principal and therefore the interest. Then, when you need money for an emergency or unexpected expense, many good home loan products will let you take it out again without fees. Parking additional money in your home loan is better than putting it into high interest accounts, which usually pay a lower rate of interest than the interest charged on home loans.
Conversely, even small penalties and fees can compound and be extremely costly over the term of the loan. Beware of fees and penalties such as monthly recurring fees, late payment penalties and redraw fees.
On a final note, beware of costly “exit fees” that may apply for several years after you take out a mortgage. Special introductory rates often come with severe penalties in the event that you pay off of the mortgage within a few years, and this could be a considerable burden if you are forced to sell your home.