Home Equity Line of Credit Advice

Kelly Ann Butterbaugh
August 25, 2006

Home Equity LoanWithout delving into the financial cogs that make home equity loans work and by avoiding all of the percentage signs and APR numbers, here's the ultimate question. Are home equity loans good or bad ideas? Answer for yourself:


Buying a Car

I notice that the interest rate on a home equity loan is lower than that of a new car loan. I'm going to then take out an equity loan to pay for my new car and take advantage of the lower interest rate as well as the tax deduction that equity loans offer.

Good Idea:

While car loans are not eligible for tax deductions, home equity loans usually are eligible. Interest is lower with the equity, and the deduction saves some money at the end of the year.

Bad Idea:

If you already have loans against your house or the car is extravagant and exceeds the value already paid on your home, you've now taken an equity loan for what is referred to as 125% of the value of the home. These loans which exceed the fair market value of the home are not eligible for the tax deduction. In addition, equity loans offer lower interest rates in trade for long term payments. In the end this might not save as much as you think since the loan is drawn over ten or even fifteen years. Consider the lifetime of the vehicle being purchased; the loan may out live the car.


Paying Off Debt

My credit card bills are getting too high. Since I'm paying such high interest on them, it's a good plan to pay them off with a home equity loan and then work to pay off that loan instead. I will still take advantage of the low interest and the tax deduction.

Good Idea:

Yes, consolidating makes sense while paying off credit card bills, and the equity offers the low term and the deduction once again. In comparison to those interest levels paid on the credit cards, the interest on the equity loan will save money as you work to pay off the accumulated debt.

Bad Idea:

This is a good idea as long as you adjust your spending habits at the same time. The biggest concern with taking loans to pay off credit debt is that your cards are once again clean slates upon which more charges can be made. Now the problem is that you have an equity loan as well as a credit card loan and you cannot afford to pay either one. Don't go in debt trying to get out of debt. Also, watch the 125% home equity loan as mentioned above.


There are many debates about the value and problems associated with using home equity loans to fix outstanding debt. There is no quick fix. Be aware that poor credit equals higher interest rates, and many loans are offered with low introductory rates that skyrocket after six months or even a year. The predation of the loan companies has become fierce; question everything before signing. Remember, with a car loan you put your car on the line if you can't pay. With a home equity loan, it's your home that you lose if you haven't budgeted correctly.

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Silver Post Medal for All Time! 263 Posts
December 22, 2005

Borrowing against your home equity looks good on paper. But don't do so, unless it's a dire emergency, such as a medical emergency.

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Ask a QuestionHere are the questions asked by community members. Read on to see the answers provided by the ThriftyFun community or ask a new question.

November 3, 2011

I am in dire need of a loan, but my credit is horrible after a divorce. I am trying to sell/trade/refinance my car for a much cheaper car because I cannot afford the payment anymore. My car loan is in default by 60 days and in imminent danger of being repossessed unless a payment is made. If I make the payment, I'm left with $7 to last 4 weeks.

On the brighter side, I own my home and do not have a mortgage. The equity is far more than I need to borrow. I do have liens against my home from creditors, about $15,000, which is roughly 10% of the appraised value. I applied for a debt consolidation loan three months ago at Springleaf and was denied due to debt/income ratio and credit. I think I asked for too much money. I was trying to pay off everything, including the car.


I now have a new job after 9 weeks of being unemployed. I have higher pay, but my work history isn't great. Does anyone know how to find any lender who might work with me on this atypical situation? I just need enough money to buy a reliable car and six months of insurance, so a few thousand at most, under 10K. With more than ten times that amount in home equity, I have to believe some company will lend me the money. Any and all advice and suggestions also appreciated. Thank you.

By Liz A from OH


Silver Feedback Medal for All Time! 337 Feedbacks
November 4, 20110 found this helpful

The first thing you should do is contact the car dealership and the company that financed the car. By ignoring that debt, you have got yourself into a crisis situation. Many places will work with you to refinance or help you through this crisis. They don't want to repossess your car. That is just a hassle for them.


Secondly, try your reputable banks and credit unions. Do not go to payday loans or any sort of easy credit place. Nothing but trouble there.

See if you have some sort of government or non-profit agency that will help you with specific advice. Some states and provinces have such things. You need informed advice by someone who can look at your finances; not just advice from people on here.

You may need a co-signer for any loan that you get, so you should see if you can find someone to give you a hand this way.

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November 4, 20110 found this helpful

Well, we went through bankruptcy and are facing possible foreclosure, yet my husband still went to a car dealership and was able to get a car loan for a Chrysler Touring 2012 with a trade-in of his 2008 truck which he still owes money on (until I asked him if he was nuts in the head and refused to go along with it). I would say you could still go to a dealership and find a car suitable for you and work out a deal with them for the car you want and the car you need to get rid of.


I also know that it takes awhile for a vehicle to be repossessed, as my husband did have a truck prior to this one he has now that did get repossessed. I'm attributing all his behavior and our troubles to a brain injury he had. I did tell him that if we had gotten that car that perhaps we would be homeless, but we could have a nice car to live in.
Good luck.

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