Now that HELOC rates are so low, many borrowers are looking for smart ways to use their lines. In a recent Scripps News column, a reader asked if he should use a HELOC to pay off his car loan.

Columnist Steve Bucci pointed out both the pros and cons and said that the reader should weigh both sides. While it’s true that there are some benefits to using a HELOC as a car loan replacement, I’d like to point out that the drawbacks can be enormous.  Bucci writes:

” First, the loan is usually a variable interest rate loan that may change — as in go up — monthly. Second, if you don’t aggressively pay down the amount you borrow from the HELOC, that loan could outlive your car. This could result in you paying on the HELOC while having a new loan for your next vehicle. Additionally, adding the car loan amount to your line of credit balance decreases the amount of equity available in your home and could be a problem should you need to sell your home unexpectedly.”

Unlike a traditional car loan, your HELOC is secured by your home. HELOC debt is also much harder to discharge. Why put your property at risk in order to finance a car?

photo credit: dave_7

See Also:

Is a HELOC Right for You?

Tags | Heloc, home equity line of credit