Most people pay for their new cars by financing them through a bank, credit union, or dealership. However, there are other ways to finance a new vehicle. Sometimes, people can ask their parents for the money and pay that back on generous terms. However, if that isn’t possible, you may need to consider other options.
Here are some of those options:
If you’ve been paying mortgage payments for a while, you may have built equity in your home. When that’s the case, your home mortgage lender may be willing to loan additional funds based on the equity in your home. That equity can be loaned as a lump sum, a home equity loan, or a home equity line of credit (HELOC) that you can use, similar to the way you’d use a credit card.
The equity in your home becomes the collateral for this kind of loan. The benefits of using the equity for other kinds of spending include the possibility that interest rates will be lower and paid interest could be tax deductible. There are also downsides, such as variable rates, that can cause your payments to be more than expected.
The biggest issue with home equity loans is that you risk your home when you borrow against it. With a traditional automobile loan, the car is the collateral. With a home equity loan, your home becomes the collateral for your auto loan.
Cash Value Life Insurance
Permanent life insurance policies carry a cash value and a death benefit. Several forms of life insurance provide options for you to borrow money against the policy’s cash value to finance other things. Some policies offer the option to withdraw cash from them.
Early withdrawal has tax implications, so you must consult a tax adviser before considering this particular option for financing a car. Interest paid on these loans doesn’t count on your income taxes as interest paid, but it goes back into your policy’s cash value. If you go this route, you must ensure the loan gets paid back quickly, so your heirs don’t lose anything from your decision to cash in on the insurance policy’s cash value.
You don’t have to settle for the dealership’s financing when you purchase a different car. You have options. This article discusses two of them, but there are more. Use your imagination and speak to your financial advisors at FinleyFi Solutions about your best options.