Can You Use Home Equity to Buy a Car?

Can You Use Home Equity to Buy a Car?

Yes, it's possible to buy a car using home equity. Homeowners can do this by taking out a home equity loan, HELOC or a cash-out refinance. You can use the funds for any purpose—such as a car—and the loans often come with long repayment terms and high borrowing limits. But, there's a big caveat: Using equity to buy a car involves putting your home at risk for a depreciating asset, so it's not usually advisable.

How Does Buying a Car With Home Equity Work?

Using home equity to buy a car involves borrowing against the value of your home. Your three primary options include:

Home Equity Loan

A home equity loan is a type of second mortgage that provides you with a lump sum of money. The loan is repaid in installments with a fixed interest rate and loan terms that usually stretch from five to 30 years.

The amount you can borrow is based on your equity, which is the market value of your home minus your mortgage balance. Home equity loans typically allow you to borrow up to 75% to 85% of that available equity.

Your home serves as collateral—so if you fall behind on payments, the lender can foreclose on your property.

Using a home equity loan to buy a car could be a good match if you prefer having predictable monthly payments, or if you don't want to make changes to your first mortgage.

Learn more: What Is Collateral?

HELOC

A home equity line of credit, or HELOC, gives you access to a revolving line of credit up to a specified limit. You can borrow from this credit line repeatedly during the draw period, which usually lasts 10 years, then repay any balance over the next 20 years. Interest rates are typically variable.

Like home equity loans, HELOCs base your borrowing power on your equity, and the property serves as collateral for the loan.

Because you can make draws on demand, using a HELOC to buy a car may work if you need to cover multiple expenses but don't want to receive the funds all at once.

Learn more: Best Ways to Use a HELOC

Cash-Out Refinance

A cash-out refinance involves taking out a new mortgage for more than you currently owe, paying off the first mortgage and keeping the difference in cash. These funds can be used for any purpose. As with your first mortgage, the home secures the loan, and you make installment payments to pay off the debt.

With a home equity loan or HELOC, the interest rate and terms stay intact on the first mortgage. But a cash-out refinance changes the rate on the entire loan balance, including the cash you're withdrawing, and often the length of the loan term.

Using a cash-out refinance to buy a car may make sense if you qualify for an interest rate that's lower than your current mortgage rate and any potential auto loan rate. Or, the cash-out refi may be a good match if you're looking to change the length of your mortgage loan term.

Borrowing Against Home Equity vs. Using Car Loans

Like home equity loans, car loans are secured by the asset you buy with the loan. Both types of financing may also offer installment payments and fixed interest rates. In contrast to home equity loans, car loans are often paid off quicker, come with lower upfront fees and can only be used to buy a car.

Rates are generally lower on auto loans compared to loans backed by home equity, but this can change over time.

^*National Credit Union Administration's 2025 Q1 Credit Union and Bank Rates report
^**Experian's 2024 Q4 State of the Automotive Finance Market report

Pros and Cons of Using Home Equity to Buy a Car

Using home equity to buy a car can provide you with long repayment terms and lower monthly payments, but you run the risk of losing your home if you fall behind on payments. Before making your decision, weigh the pros and cons of using home equity to buy a car.

Should You Use Home Equity to Buy a Car?

It's generally not a great idea to use home equity to buy a car. However, it might make sense in the following situations:

• You have no other financing options. A loan backed by equity can be a helpful option when you can't qualify for a car loan or personal loan.
• You need a car for essential purposes. Buying a car to get to work, for example, helps ensure you'll be able to make the loan payments.
• You're consolidating debt strategically. Consolidating debts under a home equity loan could make sense if you can lower your interest costs and simplify your payments.
• You can repay the loan quickly. This can help you save on interest and lower the risk of foreclosure.

Learn more:Should You Tap Into Your Home Equity?

Tips for Buying a Car Using Home Equity

If you plan to buy a car using home equity, follow these tips for best practices:

• Create a repayment plan. Go over your budget and figure out how much you can put toward a car payment each month.
• Borrow only what you need. A smaller loan helps reduce your closing fees, interest costs and monthly payments—so aim for the lowest amount you can manage.
• Compare auto loan offers. Get preapproved from a few different lenders and compare the interest rates, fees, terms and monthly payments to see which offer is best for you.
• Make sure you have emergency savings. Try to set aside three to six months' worth of expenses for your emergency fund in a savings account. This ensures you can make your home loan payment in case a financial emergency strikes.

Alternatives to Buying a Car Using Home Equity

If using home equity to buy a car isn't the right fit for you, consider these alternatives:

• Traditional car loan: If your budget is tight, try shopping for a used car loan. They come with higher interest rates but lower monthly payments.
• Personal loan: Some personal loans allow you to use the funds to buy a car. This might be a good option if you lack a down payment for a car loan.
• Car lease: With a car lease, you use the car for a prespecified term for a set monthly payment. This may help you get a lower monthly payment but does mean you don't own the car.

Learn more: Best Way to Finance a Car

The Bottom Line

While a home equity loan, HELOC or cash-out refinance can help you pay for a car, it's generally not recommended. Loans backed by home equity have higher upfront fees, increase your interest costs and come with the risk of foreclosure if you can't make payments.

An auto loan is usually the best financing option for a car, and improving your credit score may help you qualify for one. Start by checking your FICO^® Score^☉ and credit report for free to see where you stand. Paying down debt and minimizing credit utilization can help improve your credit score to get you a better rate on a loan.