Using Home Equity for a Car or Big Repair: HELOC vs. Auto Loan

Home Equity or an Auto Loan? The Short Answer

For buying a new car, a regular auto loan is usually the safer choice and often the cheaper one. The commercial-bank average for a 60-month new-car loan was 7.14% in the second quarter of 2026, according to the Federal Reserve. A home equity line of credit (HELOC) priced at the current 7.00% prime rate plus an example margin of 1 point costs 8.00%, can carry fees, and makes your home the collateral in place of the car.

For a used car, get a real auto loan quote: the Fed's bank rate series covers new-car loans only. A car-purchase loan does not pay for a repair, so for a repair bill compare a HELOC with a personal loan or a credit card.

What a $25,000 Car or Repair Costs on Each Option

The table finances $25,000; the auto loan row applies to a new car only. Your HELOC terms depend on your home value, what you still owe and the lender's margin, so estimate your HELOC limit and monthly payment with your own numbers before comparing offers. Home Equity Calcs is a free calculator site from the team behind TowingCosts.com.

Paid off on a car-loan schedule, the HELOC costs $614 more in interest than the average auto loan, before any HELOC fees. Stretching it to 10 years cuts the payment to $303 but lifts total interest to $11,398, more than double the auto loan. The interest-only version looks cheapest at $167 a month, yet after ten years you have paid $20,000 in interest and still owe the full $25,000 on a ten-year-old car. The personal loan's low total comes from its two-year term and $1,175 payment.

Why Home-Secured Debt for a Car Is Usually a Bad Trade

Five risks the interest totals do not show:

• Your house becomes the collateral. Fall behind on an auto loan and the lender can repossess the car, in many states without warning or a court order. Fall behind on a HELOC and, in the CFPB's words, you could lose your home.
• The debt can outlast the car. A car loses value every year you drive it, while a HELOC balance falls only when you pay principal.
• The rate moves. HELOCs usually carry variable rates made of an index, such as the prime rate, plus a margin. At 10.00% instead of 8.00%, the 10-year payment would be $330 instead of $303, and total interest $14,645 instead of $11,398.
• The payment jumps after the draw period. Bank of America and PenFed both set a 10-year draw period followed by 20 years of repayment. The CFPB warns that payments are often significantly higher once repayment begins, and in some cases the whole balance comes due at once. Some plans allow interest-only payments during the draw; in the interest-only example above, the payment rises from $167 to $209 in year 11.
• Fees and freezes. Lenders may charge application, appraisal and closing fees, an annual fee, and a cancellation fee for closing the line early, usually within the first two or three years. Costs differ widely by lender. PenFed pays most closing costs but charges a $99 annual fee, which adds $495 over five years. Navy Federal pays all closing costs and charges no application, origination, annual or inactivity fee, but its membership is open only to the armed forces, the Department of Defense, veterans and their families. A lender can also freeze or cut your line if your home's value drops significantly or a change in your finances makes it doubt you can repay.

Can You Deduct HELOC Interest on a Car?

No. IRS Publication 936 says interest on home equity loans and lines of credit is deductible only when the money buys, builds or substantially improves the home that secures the loan. A car purchase or repair fails that test. Public Law 119-21 removed the rule's 2025 end date, so it continues for 2026 and later years.

The same 2025 law added a temporary deduction that favors auto loans. For tax years 2025 through 2028, you can deduct up to $10,000 a year of interest on a loan used to buy a qualifying new vehicle for personal use, whether or not you itemize. The loan must be originated after December 31, 2024 and secured by a first lien on the vehicle, and the vehicle must have had its final assembly in the United States. Used vehicles do not qualify, and the deduction phases out above $100,000 of modified adjusted gross income ($200,000 for joint filers).

Can a HELOC Pay a Repair or Impound Bill Fast Enough?

Not quickly. A HELOC needs an application, a home valuation and a closing. On your main home, federal rules then give you three business days to cancel, and the lender may not release money until they pass, unless every owner signs a written waiver for a genuine personal financial emergency. In Texas, a homestead home equity loan or line cannot close before the 12th day after you apply or receive the required notice, whichever is later. Meanwhile a car at an impound lot can keep adding storage charges; see how to get your car out of impound.

Size is the other hurdle. Navy Federal's lines start at $10,000, Figure's at $15,000 and PenFed's at $25,000, so a bill of a few thousand dollars may be smaller than the line a lender will open. For smaller costs such as shipping a car, see what car transport costs.

Five Ways to Tap Home Equity, Judged for a Car Expense

• HELOC. A revolving line you draw on as needed, usually at a variable rate. The most workable of the five for a car cost.
• Home equity loan. A lump sum, typically at a fixed rate with equal payments. Predictable, but with an existing mortgage it becomes a second mortgage for something that loses value.
• Cash-out refinance. You replace your mortgage with a bigger one and take the difference in cash. The CFPB notes that closing costs are generally higher and it may take longer to pay off your mortgage. Folding a car into your mortgage can mean paying for it for as long as the mortgage lasts.
• Home equity investment. A company pays you upfront, and you repay one lump sum later based partly on your home's value, usually within 10 to 30 years. The CFPB found that under many contracts the amount owed grows 19.5% to 22% a year in the early years, just under the credit card rate in the table, and processing fees are often 3% to 5% of the upfront payment.
• Reverse mortgage (home equity conversion mortgage, or HECM). For homeowners 62 or older. You make no monthly loan payments but still pay property taxes and homeowners insurance; the amount you owe grows over time and is typically repaid when you move out or by your survivors after you die.

When Home Equity Can Make Sense for a Car Cost

How to Decide: A Five-Step Checklist

1. Get real quotes for an auto loan or personal loan.
2. Ask the HELOC lender for the margin, today's rate, the draw and repayment terms, and every fee in writing.
3. Compare total interest plus fees over the same payoff period. A lower monthly payment often hides a higher total.
4. Rerun the HELOC at a rate 2 points higher and confirm the payment still fits.
5. Set a payoff date no later than when you expect to replace the car, and automate the payments.

Sources

Rates and rules checked October 7, 2026.

• Federal Reserve, G.19 Consumer Credit, release of September 8, 2026 (Terms of Credit)
• Federal Reserve Bank of St. Louis (FRED), Bank Prime Loan Rate (DPRIME)
• CFPB, What is a home equity line of credit (HELOC)?
• CFPB, What fees can my lender charge if I take out a HELOC?
• CFPB, What is the difference between a home equity loan and a HELOC?
• CFPB, What you should know about home equity lines of credit (PDF)
• CFPB, Issue Spotlight: Home Equity Contracts: Market Overview (January 15, 2025)
• CFPB, What happens if my car is repossessed?
• 12 CFR 1026.15, right of rescission (eCFR)
• 12 CFR 1026.40, home equity plans (eCFR)
• IRS Publication 936, Home Mortgage Interest Deduction
• IRS Fact Sheet FS-2025-03, new deductions including car loan interest
• Public Law 119-21, Sec. 70108 (govinfo)
• Texas Constitution, Art. XVI, Sec. 50
• Florida Statutes 713.78 (storage fees stated as a daily rate)
• Bank of America, home equity rate and term assumptions
• PenFed, Home Equity Line of Credit terms
• Navy Federal Credit Union, HELOC
• U.S. Bank, Home Equity Line of Credit
• 24 CFR 206.205, HECM property charges (eCFR)
• Figure, Home Equity Line