Can You Borrow Money Against Your House for a Car Loan?

Can You Borrow Money Against Your House for a Car Loan?

You can borrow against your house for a car loan using your home equity, or the difference between your home's value and what you owe on your mortgage. Home equity loans, home equity lines of credit (HELOCs) and cash-out refinancing are different ways to use your home for a car loan.

Although borrowing against your home for a car loan is risky and not advised for most borrowers, here's how you can do it.

Home Equity Loan

A home equity loan uses your home's equity as collateral and typically lets you borrow up to 75% or 85% of your equity. You receive a lump sum and repay it in fixed monthly installments.

• Collateral requirements: 15% to 20% equity in your home
• Interest rate: Fixed
• Repayment term: Typically five to 30 years
• Fees: Closing costs averaging 2% to 5% of amount borrowed

Learn more: Pros and Cons of a Home Equity Loan

Home Equity Line of Credit (HELOC)

A HELOC also uses your home equity as collateral, but instead of a lump sum, you get access to a revolving line of credit. During the draw period, usually five to 10 years, you can borrow up to your credit limit and may make interest-only loan payments. After the draw period, you either repay what you borrowed (typically over 20 years) or refinance to a new loan. You may be able to borrow up to 85% of your equity with a HELOC.

• Collateral requirements: 15% to 20% equity in your home
• Interest rate: Usually variable
• Repayment term: Typically 25 to 30 years total, including draw period
• Fees: Closing costs averaging 2% to 5% of amount borrowed

Learn more: Pros and Cons of a HELOC

Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a bigger one (ideally at a lower interest rate) and gives you the difference between the two mortgage balances in cash. You repay the new mortgage in monthly payments over 10 to 30 years. You can usually borrow up to 80% of your home's value, including the new mortgage and the cash-out.

Example: If you owe $200,000 on a home worth $400,000, you could do a cash-out refi for up to $320,000 and pocket $120,000.

• Collateral requirements: More than 20% equity in your home
• Interest rate: Either a fixed-rate or adjustable rate mortgage (ARM)
• Repayment term: Typically 10 to 30 years
• Fees: Closing costs averaging 2% to 6% of amount borrowed

Learn more: Pros and Cons of a Cash-Out Refinance

Pros and Cons of Using Home Equity for a Car Loan

Using home equity for a car loan is usually a bad idea because a car's value depreciates quickly, while your home's value typically increases. There are other pros and cons to consider before using your home equity to buy a car.

Should You Use Home Equity for a Car Loan?

Using home equity for a car loan generally isn't recommended. In rare situations, it might make sense if you need a higher loan amount or can qualify for a lower interest rate than an auto loan offers.

When it comes to interest rates, though, auto loans currently have the edge. The average annual percentage rate (APR) on a new car loan is 6.35%, according to Experian's State of the Automotive Finance Market report from the fourth quarter of 2024. In comparison, the average APR for a 30-year fixed-rate mortgage refinance is 7.15%, according to Curinos data as of April 4, 2025. The average APR for a home equity loan is 7.41% and the average APR for a HELOC is 8.08%, according to National Credit Union Administration (NCUA) data from the first quarter of 2025.

Instead of using your equity to buy a car, consider working to improve your credit score so you can get an auto loan with better terms. Saving for a bigger down payment or buying a cheaper car (perhaps used) are other options.

Car payment calculator

How to Get a Car Loan Using Home Equity

If you decide to use your home equity to buy a car, here's what to do.

1. Determine Your Home Equity

To calculate your home equity:

1. Use a website such as Zillow, Redfin or Realtor.com to estimate your home's value.
2. Subtract the balance of your first and any second mortgages from your home value; this is your equity amount.
3. Divide the equity amount by your home's value, then multiply the result by 100 to get your equity percentage.

Suppose your home is worth $500,000 and you owe $400,000 on your mortgage.

• $500,000 - $400,000 = $100,000 in equity
• ($100,000 / $500,000) x 100 = 20% equity
• Depending on the home equity loan product you choose, you could borrow between $60,000 and $85,000.

2. Research Lenders

Your existing mortgage lender is a good place to start. Also compare loan rates and terms from other banks, online lenders and credit unions. Although it doesn't guarantee approval, getting preapproved for a loan can give you an idea of how much you may be able to borrow.

3. Choose a Lender and Apply for the Loan

Compare loan offers and choose the one with the best terms. (Experian's APR calculator can help you compare loan costs.) Complete a loan application. Your lender may require a home appraisal to assess the market value of your home.

4. Receive Your Funds

Once your loan is approved, review the loan contract and sign the documents to close on the loan. You'll then receive your funds.

5. Buy the Car

You're ready to pay cash for your car—but don't let the dealership know that upfront. Dealers may charge more if they know you're paying cash. Agree on a sales price first, then confirm the total cost, including fees, taxes and any extras. Most dealers require a cashier's check or wire transfer, which you can handle at your bank.

Alternatives to Using Home Equity for a Car Loan

Rather than using your home equity to pay for a car, consider these alternatives.

• Get a traditional car loan. Banks, online lenders and auto dealers all offer auto loans. Try getting preapproved by a few banks and online lenders; then see if the dealership can beat their terms.
• Get a credit union car loan. Credit unions often offer lower interest rates on car loans than other lenders and may have more flexible eligibility requirements, which is helpful if your credit is less than stellar.
• Get a personal loan. Personal loans can range up to $100,000 and are usually unsecured, so there's no collateral at risk. The APR on personal loans is generally higher than for auto loans (currently 11.66%, according to February 2025 data from the Federal Reserve), but they typically offer fast approval and fixed interest rates.
• Enlist a cosigner. If poor credit is holding you back, get a friend or family member with good credit to cosign on the loan. The cosigner agrees to repay the loan if you can't make your payments.
• Pay in cash. Buying a new car with cash could be a financial stretch, but saving up for a used car may be doable.

The Bottom Line

Improving your credit score may help you get an auto loan. Start by checking your credit scores and credit report for free to see where you stand. Paying down debt and minimizing credit utilization can help improve your credit score.

Also consider signing up for Experian Boost^®ø, which adds eligible utility, insurance, rent and cellphone bills to your Experian credit report. Experian Boost is a free feature and could help increase your credit scores powered by Experian data.