Should I use home equity to buy a car?

August 10, 2017
Rebecca Crommelin

If you’re looking to buy a new car, it may be tempting to use your home equity to fund the purchase. But it could pay to consider a car loan. We take a look at the pros and cons.

If you have owned your home for a while, it’s likely that you have built up some home equity, and this can be used as low-interest funds to buy a new car.

The benefit of using your equity is that you don’t have to go through any additional credit checks, and you’ll still only have to make one repayment every month.

However, the main benefit is that home loan interest rates are generally much lower than what you would expect to pay on a car loan.

But wait, there’s a catch!

Having a home loan is a long term debt. So you would be paying interest on your car for much longer than you would otherwise with a car loan, and this can really increase the overall cost of your car.

For example, if you added an extra $30,000 onto a $400,000 home loan it could mean paying up to $19,527* more in interest. That is more than half the total cost of your new car. You could minimize this cost by making extra repayments, however this would mean setting an ongoing commitment to pay more than monthly minimum repayment.

It’s also important to remember that, unlike property, cars depreciate in value very quickly – so it would be wise to pay off your vehicle as soon as possible in order to keep interest costs to a minimum and make the most of your asset and finances.

What are the benefits of using a car loan?

If you choose to use a separate car loan to finance your new car, it may result in paying more every month which is largely due to the debt being paid off in a quicker timeframe.

However, the biggest benefit of a car loan is that they have short loan terms, typically only five years, so even though the loan rate might be higher than your home loan, the overall interest cost will be less.

It’s also worth noting that car loans are much more flexible than they previously were. Some loan products will let you make extra repayments, and even allow you to use redraw facilities. In addition, having a separate car loan will allow you to divide these different debts to have further clarity over your overall finances.

But, it’s best to speak with our brokers to find out which is the right option for you – whether that is to unlock your home equity or get a car loan to buy your new car.

Contact our team today on (08) 9485 0090 to drive away with the right finance for your new car. 

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*This calculation is based on rate of 3.67% (lowest on Mortgage Choice panel) and term of 30 years using loan calculator at

Posted in: Car loans & leasing

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