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Question:


I’m seriously contemplating taking out a home equity loan to buy a new car. Thoughts?
-FutureMustangOwner


Answer:


This sounds like a bad idea. True, the interest rate on a home-equity loan is bound to be lower than the rate on a car loan, but that’s because the collateral you pledge to the bank is more substantial – a home rather than a car.
 
For the extra few percentage points you save, however, you’ll be putting your home at risk for the sake of owning an asset that has a much shorter useful life. Many car owners in recent years have found that they continue to owe on the loan they took to buy the car long after the car has been sold, mothballed or totaled. If you need a car to get to and from work, or to actually do work, then it becomes an investment and not just a set of wheels. That changes the equation a bit and makes what you’re proposing a little more justifiable, but not to the point of buying a Mustang.
-Conrad de Aenlle



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