Equity loan to pay for a new car?

**Giro** · 07-05-2012, 08:59 AM

I'm trying to decide how to pay for a car I would like to purchase. I like the idea of an equity loan because the interest is tax deductible and we are in desperate need of tax deductions.

I know this isn't Dave Ramsey approved, but I really don't want to get an auto loan with higher interest and no tax deduction.

My plan is to pay off my current car loan now, put $5K down on the new (to me) car and finance the rest thru a home equity loan.

Are there any negatives that I'm not considering with regard to the equity loan?

**ladykemma2** · 07-05-2012, 09:15 AM

what's wrong with the 11,000 car you have now?

**Giro** · 07-05-2012, 09:18 AM

Nothing is wrong with the car. The $11,000 is what I have left on the loan. I plan on keeping that car. I would pay it off now and finance the new car (less the down payment) with an equity loan.

**ladykemma2** · 07-05-2012, 09:23 AM

why do you need another car?

**Greebo** · 07-05-2012, 09:28 AM

This forum is about debt *reduction* and money management.

You're talking about the best way to do a debt increase.

We cannot help you.

**Giro** · 07-05-2012, 09:35 AM

I was just asking the best way to pay for the car.

**ladykemma2** · 07-05-2012, 09:49 AM

watch all the gail vaz oxlade's Til Debt Do Us Part ad see how many of the idiots she counsels on the show roll consumer debt/car debt into their mortgage.

also, you can just walk away from a car loan, they repossess and that's it, unless they come after you for the balance. you screw up on a mortgage or line of credit, and they take your house.

what's wrong with the vespa?

**Greebo** · 07-05-2012, 10:07 AM

Originally Posted by Giro

I was just asking the best way to pay for the car.

That's easy.

Cash.

**Greebo** · 07-05-2012, 10:11 AM

Assuming we're talking a new car, here's what's wrong with financing it, no matter how you do it:

You're buying something for somewhere around $25,000-$50,000 that's going to lose 50% of it's value in four years. At $25,000 that means you'll lose $12,500 in 4 years (most in the first 2) at an average rate of $60 a week.

On top of that you're going to pay INTEREST on the object that's losing value. You're going to pay a bank basically for the privilege of peeing money down your leg.

Been there, done that three times, bought the I'm a moron t-shirt to prove it.

If you cannot pay cash for the car, you cannot afford the car. For a first car I can understand the need to finance a few grand to get a used car to get from point A to B. For a second car? There's no economic justification for the loss of money involved - not used and DEFINITELY not new.

So - good luck with whatever you plan on doing.

**Giro** · 07-05-2012, 10:42 AM

It's a used car. I just wanted it, it's not a I need to get from point a to point b. I don't have the liquid assets to pay for the car. Well, I do, but I don't want to empty my account paying for it.

The vespa is still cool. I putt around town on it. It's a toy. It's a little warm right now to be riding it.

I may wait a few months and pay cash. But, there's some killer deals right now and I would love to have it for the rest of the summer.

**ladykemma2** · 07-05-2012, 10:51 AM

so, you would mortgage your house for a car that is a want, not a need? see where i have been going with this?

priorities:
1. how is your beginner emergency fund? is it topped off?
2. how is any debt repayment going?
3. your daughter is going to college, so august is going to be full of cost, like sheets for a twin bed, and getting the stuff she needs for the house you plan for her to live in. and i hope you did not buy her that camaro...
4. think, think, think

**Giro** · 07-05-2012, 10:59 AM

1. emergency fund is fully funded
2. I owe around $11k on my car. I can pay it off.
3. my daughter is going to state college. Which is saving both of us a fortune. She has a job lined up for when she turns 18 but that isn't going to be for awhile. She is going to pay her expenses when she gets a job.
4. my finances are in pretty decent shape. An equity loan would not break us.

**Greebo** · 07-05-2012, 11:05 AM

Negatives associated with an equity loan - have you read the news lately? The mortgage melt downs? The number of people underwater on their homes? The sinking home values?

Home equity loans take paid off debt on your house and turns it into debt on the house, *again*. Yeah, you'll save a few hundred on your taxes as a result, but what are the terms on the equity loan?

I doubt that any "savings" you get from the "killer deals" will continue to be a savings when you factor in the long term interest costs.

**Giro** · 07-05-2012, 11:06 AM

I realize that it would be optimal to just save and pay cash, but then why not invest the cash? The way I operate is that I try and make as much money off of the money that I already have. WHen you do that, you never buy anything for yourself if you believe you should never borrow.

I'm really not trying to justify this...okay, maybe a little. It's a neat car!

**Giro** · 07-05-2012, 11:11 AM

The value of my house would never go down in value so much that it would be worth less than a small-ish car loan. What is the net interest on a home equity loan...2%? If I saved a few thousand on the car and paid it off in 24 months, that isn't a lot of interest. It may take me 36 months, but it's still not that much in interest.