Auto Loan vs. Home Equity Loan Calculator
Compare the costs of financing a car with an auto loan versus a home equity loan
This calculator helps you decide whether to finance a vehicle purchase using a traditional auto loan or by tapping into your home's equity. We'll compare interest rates, tax implications, risks, and long-term costs.
1. Key Differences at a Glance
| Feature | Auto Loan | Home Equity Loan |
|---|---|---|
| Collateral | The vehicle itself | Your home |
| Interest Rates | Typically 4-10% | Typically 5-8% (but often lower than auto loans) |
| Loan Term | 2-7 years | 5-30 years |
| Tax Deductibility | No | Interest may be deductible (if used for home improvement) |
| Risk | Repo of car if default | Foreclosure risk if default |
| Funding Speed | Fast (same day) | Slower (weeks to process) |
2. How to Calculate & Compare Costs
Inputs Needed:
Vehicle price
Down payment amount
Your credit score (for rate estimation)
Home equity available
Current mortgage details (for HELOC comparison)
Sample Scenario:
Car Price: $35,000
Down Payment: $5,000
Amount to Finance: $30,000
Auto Loan Option: 5% APR for 60 months
HELOC Option: 6% APR for 10-year draw period
Monthly Payment Calculation:
Auto Loan:
Payment = [P × r × (1+r)^n] / [(1+r)^n - 1]
= [$30,000 × 0.004167 × (1.004167)^60] / [(1.004167)^60 - 1]
= $566/month
Total Interest: $3,960
Home Equity Loan:
Payment = [P × r × (1+r)^n] / [(1+r)^n - 1]
= [$30,000 × 0.005 × (1.005)^120] / [(1.005)^120 - 1]
= $333/month (10-year repayment)
Total Interest: $9,960 (but potentially tax-deductible)
3. Tax Implications Comparison
Auto Loan Interest: Never deductible
HELOC Interest: May be deductible up to $750k mortgage debt if used for home improvements (consult a tax professional)
Example Tax Savings:
If in 24% tax bracket and $2,000/year in HELOC interest is deductible:
Annual savings = $2,000 × 0.24 = $480
Effective interest rate drops from 6% to ~4.56%
4. Risk Assessment
Auto Loan Risks:
Vehicle depreciation (may owe more than car's worth)
Repossession if you default
HELOC Risks:
Foreclosure possible if you default
Fluctuating rates (if variable HELOC)
Putting your home at stake
5. When to Choose Each Option
Choose an Auto Loan If:
✅ You want faster approval
✅ You don't want to risk your home
✅ Your car will retain value well
✅ You have excellent credit (for lowest rates)
Choose a HELOC If:
✅ You have significant home equity
✅ You can get a much lower rate
✅ You want longer repayment terms
✅ You're using some funds for home improvements (for tax deduction)
6. Best Calculator Tools
Bankrate's Auto vs. Home Equity Calculator
NerdWallet's Loan Comparison Tool
Credit Karma's Debt Comparison Calculator
7. Pro Tips
🔹 Compare APRs - Not just interest rates (includes fees)
🔹 Run amortization schedules - See interest costs year-by-year
🔹 Consider alternatives - 0% dealer financing or personal loans
🔹 Check prepayment penalties - Some HELOCs have early payoff fees
8. Frequently Asked Questions
Q: Can I use a HELOC to buy a car?
A: Yes, but rates may adjust and your home is collateral.
Q: Which has higher closing costs?
A: HELOCs (typically 2-5% of loan amount) vs auto loans (often $0-$500)
Q: Is a HELOC better for used cars?
A: Possibly - used auto loans often have higher rates than HELOCs.
Bottom Line: A home equity loan often offers lower rates but greater risk. Auto loans are faster and keep your home safe. Run your specific numbers through a detailed calculator before deciding.
Would you like an Excel template to compare these options with your exact numbers? I can provide a customizable spreadsheet to help you make the best decision.