Is it better to borrow $10K on a auto loan @ 8.25% for 36 mos. or on a home equity line of credit at 10.2%?
Question:
Answer:
If you take the 10.2% you will pay $11,650 over 36 months
If you take the 8.25% you will pay $11,322 over 36 months
The cheaper one sounds like the right one based on the information you have provided. However, if the home equity line of credit or the e-loan has additional fees you need to add that to these totals. That will tell you which one is cheaper. Some other things to consider. Is there a way to pay it off early? Is there a prepayment penalty? Is one or the other more of a hassle to deal with?
Good luck. Hope this helps.
It depends on your situation. But generally, a home equity loan could be better because while you pay higher interest, the interest can be deducted from your income.
The interest paid on a home equity line is usually deductible. Therefore, the actual rate you pay on the line is less than 10.2%. The actual rate depends on your tax rate and if you itemize your deductions.
Consider looking at your choices from a different angle.
If at any point you were unable to afford the payments on this vehicle, would you rather have a car or your home being offered as equity?
The interest rate on the HELOC is variable. The auto loan would be fixed. No surprises on the fixed rate loan.
Think really hard before using your home to help pay for a car.
raphapa has the right answer, but one more thing to consider is that the interest rate on a HELOC changes over time. So, that interest rate will probably rise in the next 3 years, which will wipe out any savings from the tax deduction.
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