Paying Off Car Loans with HELOCs and Bad Credit

A home equity line of credit can offer you a solution to paying off car loans. Even with bad credit you can generally find companies that will offer you HELOC loans. Here's what you need to know.

A HELOC, or home equity line of credit, is a loan that is taken against the equity you've built up in your home. They are great loans, and can be used for any purpose. The interest rates are almost always fixed, and usually offer lower interest rates than personal loans. They are most commonly taken as emergency money, or home improvements, but there is nothing saying you can't use it for a car loan.

With a home equity line of credit you generally have more flexibility in the terms. Most HELOCs are payable over 10 to 18 years, as opposed to the standard 3 to 6 years for a car loan. This means if you use the home equity line to pay off your car loan you will have lower monthly payments when you pay back the line of credit.

The interest you pay on a home equity line may be tax deductible. In most cases the loan needs to be used for home improvements, but you can talk to a tax accountant to see if you are able to deduct any interest from this.

If you have equity built up in your home it may not be difficult to obtain a HELOC. Your credit will be looked at, but the bank is really looking at the equity and loaning you money based on that. So it is possible to get a home equity line with bad credit. As a general rule you may not be able to borrow against the entire amount of equity built in your home. Having bad credit will also increase the interest rate, so weigh this against the interest rate you are paying on your car to decide if it's worth it.

To many people this is seen as a negative. Taking out a HELOC to pay off a car loan isn't really solving a problem; it can be prolonging it instead. Home equity lines are great, but it's more debt at the same time. Consider this carefully before you decide to do this.

Anytime you take a line of credit from your equity value and then use the line, you are potentially decreasing the amount of equity in your home. If you are planning on selling your home later this can be problematic. If something happens and you find yourself in a position where you have to sell your house unexpectedly you can end up in trouble. Be very careful when you decide to take out a line of credit on your home. Keep an eye on the real estate market and your homes worth. The last thing you want is to owe more on your mortgage and equity line than your home is worth.