I’ve read many articles on pros and cons of using your HELOC when it comes to buying anything from a car or truck to boats and RVs… I always come to the same conclusion I’ve come to, the people that wrote the articles are either
a) Idiots
b) Work for a company that offers HELOC loans.
If you are planning on buying a car using your HELOC, STOP, it is quite possible the worst financial mistake a person can make.
Banks love it when you use your Home Equity Line of Credit for purchases instead of what it is meant for.
HELOCs are advanced based on the equity in the house, you can use that equity for improvements on your property which in turn will hopefully increase the sale value when you decide to sell and then pay off the mortgage and HELOC with the proceeds of the sale. If your mortgage comes up for renewal, the banks will offer you the opportunity to roll the balance of your HELOC into your mortgage, if all you’ve used it for is home renovations, this isn’t that bad.
BUT….
If you have purchased a car, went on a trip, bought a new RV (basically anything other then what they are meant for) you are now paying these off over a longer term and costing your thousands in extra interest. Lets look at an example of using it to purchase a vehicle vs dealer financing
HOME EQUITY LINE OF CREDIT
If you have an existing credit line with sufficient available credit to pay for the vehicle you’ve chosen, keep in mind how your credit line assesses the minimum payment each month. It will be tied to the prime lending rate, which will go up or down depending on Bank of Canada.
With a line of credit, your minimum monthly required payment will fluctuate, which can make it harder to budget, especially if you’re banking on only making minimum payments. If you save your credit line for emergencies, the cash you need for an emergency may no longer be available if you use most of your credit limit to buy a vehicle.
If your credit score drops for some reason and your lender becomes concerned that you may not be able to repay your credit line, they can ask for full payment of the line of credit or lower your credit limit drastically at any time.
FINALLY, when it comes time to renew your mortgage, if you also pay off your line of credit at that time to get “1 easy payment” you are now paying for that car for what could be 10 or 15 years costing you 10s of thousands in interest.
DEALER FINANCING
Applying for a loan through a dealer can mean that your loan application will be brokered to various lenders to get you the best rate.
There is no need to set up an appointment with your bank, dealerships are tied into the banks and depending on your credit, can have an answer in minutes.
No fluctuations in rate or payment, terms and rates are fixed so the payment on the 1st day is the same in year 4.
Sub-vented rates on new – Manufacturers have deals placed with the main banks in Canada to offer lower rates on new vehicles, some can even offer 0%
NO PENALTY to pay the loan out early or to make extra payments.
The loan stands on its own and isn’t tied to any other asset.
If you are planning on using you HELOC to make your next big purchase, please do some research ahead of time.
Rampage Powersports 