A cash-out refinance means refinancing your old mortgage loan with a larger loan and accepting the difference in cash. You can then spend it any way you want. So, naturally, you can use a cash-out refinance to buy a car or pay for one at a discount. Using a cash-out refinance to buy a car can only be added to that list if you need it and can't afford it from any other.
way. However, the drawbacks of using a home equity loan to finance a car purchase are such that it's worth trying to make a regular car loan more affordable before turning to mortgage capital. It's time to look at the compelling reasons financial advisors will give you against using a cash-out refinance to buy a car. Hopefully, by then you'll have completely forgotten that you used your cash-out refinance to buy a car.
Depending on how much you borrow with the home equity loan, this longer-term could mean that your monthly payments are much lower compared to payments on a five-year auto loan. You're using money that you've already paid in your mortgage, and home equity loans can have very low monthly payments compared to auto loans. If you use a home equity loan to buy a car, you may quickly owe more of the loan than the car is worth. You can use the cash from a home equity loan to buy anything you want; after all, it's your money.
Because cars don't hold their value over time, it doesn't make sense to link the home to the financing needed to repay a loan for an item that, in the end, wouldn't be worth much. Virtually all cash-out refinances cost more than direct purchase mortgages or refinances in which no cash is withdrawn. Refinancing with cash out to buy an expensive car that you don't need or to pay once is generally considered a bad decision. Home equity loans generally have much longer repayment terms than this, so if you use a home equity loan to buy a car, you may be paying off the loan for years after your car has lost its value. Of course, this assumes that you're applying for a home equity loan to buy a car, and nothing else. You can use the money you receive from a home equity loan any way you want; after all, it's the money you previously paid for your mortgage.
While using a home equity loan to buy a car is often a bad idea, for some people it may be the only viable way to pay for a vehicle. Despite being insured, auto loan rates can vary greatly, depending on your credit rating and whether the car in question is new or used, exceeding 16 percent or more.
