Loan Loser: Home-Financing a Car
Okay, you're probably thinking that sounds outrageous, so let me take it down a bit. How about a 10-year auto loan?</br></br>If you're financing the purchase of a car with the equity in your home, that is exactly what you could be doing -- paying for a car over 10 or even 30 years.</br></br>The use of home-equity loans, lines of credit and cash-out refinancing to purchase automobiles grew in the last decade as interest rates dropped and property values soared. It also has become popular as lenders hype the fact that interest on a home loan is tax-deductible, unlike interest on a vehicle loan.</br></br>In 2006, about 24 percent of homeowners used a home equity line of credit to purchase a car or truck, according to Synergistics Research, a financial services market research company based in Chamblee, Ga. About 8 percent of homeowners took out a second mortgage specifically to buy a vehicle, says William H. McCracken, chief executive of Synergistics.</br></br>But is buying a car or paying off your remaining auto loan balance with the borrowed equity from your home a good financial move? "I issue a note of caution on this," says Don Taylor, a columnist for Bankrate.com and an associate professor of finance at the American College in Bryn Mawr, Pa. "If you don't have the discipline to do more than the minimum payments on these loans, then this is not a good idea."