is it better to make payments on a 6% car loan, or use an home equity line at 8.25%?

Question

I just am trying to find out if its better to make payments on a 6% car loan at 210/month.. or use a home equity line at 8.25% which would be a little higher interest, but the interest would be a tax advantage to me. But im trying to see if anyone can tell me if the benefit of the tax write off would be larger then the 2.25% more i would be paying in interest...

Answer 1

Depends on your tax bracket. The breakeven is 28%

So as long as you're paying less than 28% marginal tax, then you're better off with the 6% car loan. Plus, you haven't collateralized your car with your house.

8.25% * (1-28%) = 6%

Answer 2

Stick with the car loan because the car loan is simple interest just like a mortgage. Your home equity line is interest only and you'd have to make payments above the requsted amount to attack principle. The auto loan forces you to pay principle and interest. Also if you are deep into the amortization schedule that will help you as well because you are starting to attack more principle with your standard car payment.

Answer 3

Pay the car loan. Would you go out tomorrow and apply for a new loan at 8.25% to pay off the balance you owe (at 6%) on your car? Of course not!

The fact that the interest is deductible on one and not the other is irrelevant, unless either your car or you house is worth multiple millions of dollars!

If you read the small print, you are likely to find also that that the car loan is 'simple' interest, whereas your equity line is probably compounded daily...

Best wishes.

Answer 4

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Answer 5

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Answer 6

Bad idea. Why would you wanna put your house on the line for a car loan?

Answer 7

Stick with the car loan.