I try to save $$$ in the long run whenever I can, my car owes approximately $9K at a 5.95% interest rate for 6 years (going on the 4th year of that now), my current HELOC rate is 3.25%, I got an offer to refinance my car for 3.99% which got me to thinking…what if I just PAY OFF the higher auto loan rate using my HELOC & make the SAME EXACT payment (of approx $355 a month) toward my HELOC instead? Would that save me $$$ in the long run? Shorten my payment? Is it wise?
Serious answers please as I would like to take action soon..thanks.
Borrowing money against your house for a car is one of the worst financial moves you can make.
Think of it this way…you default on your car payments. They take your car. You still have someplace to live.
You default on the HELOC and lose your house. Now you are out on the street. Can you live in your car? Can you store all your belongings in your car?
How about designing an aggressive payoff plan for the car. Cut back on as many things as possible. Double your car payments if possible. Pay it off in a matter of months instead of 2 more years. Then the amount of extra interest you are paying is negligible.
Yes it will save you money and the interest on the HELOC is usually tax deductible. Yes it would be wise to do it. Is the 3.25% fixed or variable. Also do check to see if you have a floor rate on the HELOC, most of them do. Even tho prime is 3.25% your rate could be higher with a floor. Check on those first and if all checks out well than do it.
For the other answerer: It is not the worst financial decision he can make and it is a good idea. They won’t take the house for $9k. It is only a bad decision when you are not financially stable or are planning on not paying it.
One of the challenges is that your car loan is pegged at 5.95% but your HE-LOC is at 3.25% which could change if the bank rate starts to rise (When it does it will be a sharp and fast rise). If you choose this option you may save money in the short term but it may cost you in the long term. If the 3.99% offer is for the duration of the loan that means you would save 2% interest. Make sure that the 3.99% is not just an introductory offer. 3.99% works out to an interest savings of $15 per month on the $9000. If your payment stayed the same that means that you would pay $15 less interest and therefore $15 per month more on the balance of the loan each month. That is good. $180 per year is a worthy and wise savings. One other thing to make sure of is that there is no charge for exiting/paying off your original loan early.