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Question:


Should I tie my auto loan to my mortgage financing?
-Jenny


Answer:


This is one of those good news/bad news situations. If you take out a second mortgage or use a home-equity line of credit to raise funds to buy a car, you are likely to get a substantially lower interest rate than if you arrange a conventional car loan. But at a time when we’re lucky to get something for something, it’s too much to expect something for nothing. There’s a reason that the interest rate is lower. Doing what you propose means using your home as collateral for financing the car. If you have trouble scraping the cash together one month to make the payment on your mortgage or home-equity loan – which is bigger because you borrowed more to buy the car – it puts your home, not just your wheels, in jeopardy. And what happens if you lose your job? You won’t be able to walk away from your car without risking walking away from your home too. You’ll have to worry about the prospect of foreclosure, not just a visit from the repo man. What you’re considering makes sense if you’re certain that you won’t default or fall behind on your payments, but if you have that certainty, then chances are you’ll be able to get a car loan at a favorable rate anyway.
-Conrad de Aenlle



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