How to Use This Calculator
- 1
Enter the Vehicle Purchase Price
Input the total price of the vehicle you plan to buy.
- 2
Enter Auto Loan Terms
Input the auto loan interest rate, term, and down payment.
- 3
Enter Home Equity Loan Terms
Input the home equity loan rate, term, and any closing costs.
- 4
Compare Total Costs
Review the total cost of each option including interest, fees, and potential tax benefits.
Example Calculation
Deciding whether to use an auto loan or home equity loan to purchase a $35,000 vehicle.
Vehicle Price
$35,000
Auto Loan Rate
7.5%
Auto Loan Term
5 years
Home Equity Rate
6.0%
Home Equity Term
10 years
HE Closing Costs
$1,200
Results
Auto loan total cost
$42,060 over 5 years ($701/month). Home equity loan total cost: $47,810 over 10 years ($387/month) including closing costs. Auto loan saves $5,750 total despite higher rate due to shorter term.
Tips
Consider the Risk
A home equity loan puts your home at risk as collateral. An auto loan only risks the vehicle. Weigh the rate savings against this significant risk difference.
Match the Term to the Asset
Avoid using a 15-year home equity loan for a car that depreciates in 5-7 years. You could owe more than the car is worth for years.
Factor in Tax Benefits
Home equity loan interest may be tax-deductible if used for home improvements, but typically not for vehicle purchases. Verify with a tax professional.
Auto Loan vs. Home Equity Loan: Choosing Your Vehicle Financing
The Auto Loan vs Home Equity Loan Calculator compares total cost, monthly payments, and tax implications for two vehicle financing options.
For a $28,000 loan (after $7,000 down on a $35,000 vehicle), a 60-month auto loan at 6.5% costs $33,371 total, while a 120-month home equity loan at 5.2% costs $36,215 — the shorter auto loan term saves $2,843 despite the higher rate, because it generates $3,096 less in interest.
Comparing Auto Loan and Home Equity Loan Formulas
Both loan types use the standard amortization formula:
Monthly Payment = P x [r(1+r)^n] / [(1+r)^n - 1]
Where P = principal ($28,000), r = monthly rate (annual / 12), n = total payments.
For home equity, potential tax savings reduce the effective cost: Net Interest = Total Interest x (1 - Tax Rate).
The calculator compares total cost including fees and tax benefits.
Case Study: Financing a $28,000 Vehicle
Comparing a $35,000 vehicle purchase with $7,000 down payment ($28,000 financed):
Option A: Auto Loan (60 months at 6.5% APR, $500 fees)
- Monthly Payment: $547.85
- Total Interest: $4,871
- Total Cost: $33,371 ($28,000 + $4,871 + $500)
Option B: Home Equity Loan (120 months at 5.2% APR, $2,000 fees, 22% tax rate)
- Monthly Payment: $299.73
- Total Interest: $7,967 (net $6,215 after $1,753 tax savings)
- Total Cost: $36,215 ($28,000 + $7,967 + $2,000 - $1,753)
The Auto Loan saves $2,843 in total cost.
Despite the 1.3% higher rate, its 60-month term versus 120 months means dramatically less interest.
The home equity loan's lower monthly payment ($248.12/mo less) is attractive for cash flow but costs more overall.
Regulatory Context for Home Equity Loans
Home equity loans are regulated by the Consumer Financial Protection Bureau (CFPB) under the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA).
Critically, the Tax Cuts and Jobs Act of 2017 limits interest deductibility to loans used to buy, build, or substantially improve the securing home — interest on home equity loans used for vehicle purchases is generally not deductible.
This calculator includes tax savings for comparison purposes, but borrowers should consult IRS Publication 936 and a tax professional for their specific situation.
Frequently Asked Questions
Should I use a home equity loan to buy a car?
Home equity loans often have lower interest rates than auto loans (5-8% vs. 6-12%), and the interest may be tax-deductible. However, you are putting your home at risk as collateral. This approach works best for borrowers with significant equity and disciplined repayment habits.
What are the risks of using home equity for a car?
The main risk is that your home serves as collateral. If you default on the loan, you could lose your home. Auto loans only risk the vehicle. Additionally, home equity loans often have longer terms, meaning you might owe more than the car is worth for years.
How do the total costs compare?
While home equity loans typically have lower rates, they often have closing costs of 2-5% of the loan amount. Auto loans usually have no closing costs. This calculator compares the total cost of each option, including fees, interest, and potential tax savings.