Home Equity Loan – Drive Your Dream Car (2026 Guide)

Many Australians are exploring creative ways to finance their dreams, including buying a car. One option that often comes up is using a home equity loan to fund this purchase. But is it a viable option for you? With access to over 83 lenders through Esteb and Co, we can help you navigate this financial decision. Let’s dive into whether using a home equity loan to buy a car makes sense for your situation.

Understanding Home Equity Loans

Home equity loans, often referred to as second mortgages, allow you to borrow against the equity you've built up in your home. Equity is the difference between your home's current market value and the balance of your mortgage. For example, if your home is valued at $800,000 and you owe $500,000, your equity is $300,000.

Home equity loans typically offer lower interest rates than other types of loans because they are secured against your property. However, it's crucial to understand that failing to repay could put your home at risk.

Current Market Rates and Requirements

As of 2026, interest rates for home equity loans in Australia typically range from 6.49% to 12%, depending on the lender and your financial situation. Lenders will evaluate your creditworthiness, the amount of equity you have, and your ability to make repayments.

Eligibility criteria often include:

• A minimum of 20% equity in your home.
• Proof of stable income and employment.
• A good credit history.
• Ability to make repayments over the loan term.

Let's compare a few key options in the table below:

Steps to Use a Home Equity Loan to Buy a Car

Here’s a step-by-step guide to using a home equity loan for purchasing a car:

1. Assess Your Equity: Calculate your home equity and determine how much you can potentially borrow. Remember, lenders typically allow you to borrow up to 80% of your home's value.
2. Check Your Credit Score: Ensure your credit score is in good standing to secure the best interest rates.
3. Compare Lenders: With Esteb and Co's access to 83+ lenders, compare different home equity loan options to find the best rate and terms.
4. Apply for the Loan: Once you’ve chosen a lender, submit your application with all required documents.
5. Use the Funds: Once approved, use the funds to purchase your car. Make sure to manage your repayments diligently.

Tips and Considerations

When considering a home equity loan for buying a car, keep these expert tips in mind:

• Loan Terms: Choose a loan term that aligns with your financial goals. A shorter term may have higher repayments but will save you money on interest.
• Risk Assessment: Understand the risk of securing a loan against your home; non-payment could lead to foreclosure.
• Alternative Options: Consider whether a car loan might be more suitable. While interest rates might be higher, it doesn't put your home at risk.
• Consult with Experts: Speak with a mortgage broker at Esteb and Co to explore all available options and get tailored advice.

Frequently Asked Questions

1. Can I use a home equity loan for any car?
   Yes, you can use the funds for any car purchase, but ensure that the amount borrowed aligns with your repayment capability.
2. What happens if I can't repay my home equity loan?
   If you default, the lender could initiate foreclosure proceedings on your home.
3. Are there tax implications?
   Unlike the US, interest on home equity loans in Australia is not tax-deductible.
4. How long does it take to get approved?
   Approval times can vary but typically range from 2-4 weeks.
5. Can I refinance my home equity loan?
   Yes, you can refinance, but consider the costs and benefits of doing so.
6. Is it better to use a home equity loan than a car loan?
   This depends on your financial situation, interest rates, and risk tolerance. Evaluate both options carefully.
7. How much equity do I need?
   Most lenders require at least 20% equity in your home.