Buy a Car with a Home Loan? Discover Your Options

Have you ever wondered if you can leverage your home loan to purchase a car? With the ever-increasing cost of living and the need to manage expenses smartly, many Australians are exploring creative financing options. One such option is using a home loan to buy a car. But is it feasible, and more importantly, is it a wise financial decision? Let's delve into the possibilities and guide you through this intriguing option.

Understanding Buying a Car with a Home Loan

Buying a car with a home loan involves refinancing or drawing down on your current mortgage to access the equity you’ve built up in your property. This can often be done by increasing the size of your existing home loan or opting for a line of credit. The key advantage here is the usually lower interest rates associated with home loans compared to traditional car loans.

For instance, home loan interest rates in 2026 range between 6.49% and 8%, whereas car loan rates can be as high as 12% or more. By using your home loan, you tap into a lower rate, potentially reducing your monthly repayments and overall interest paid over time.

Rates, Requirements, and Options

Before deciding to use your home loan to purchase a car, it's crucial to understand the rates, eligibility criteria, and available options. Here's a breakdown:

Eligibility Criteria: To qualify, you typically need sufficient equity in your home, a stable income, a good credit score, and a clean repayment history. Lenders on Esteb and Co’s panel of over 83 lenders can offer competitive rates and options once these criteria are met.

Steps to Buy a Car with a Home Loan

If you’re considering this option, follow these practical steps:

1. Assess Your Equity: Calculate the equity in your home. This is the difference between your property’s current market value and the balance of your mortgage.
2. Check Your Credit Score: Ensure your credit score is healthy as this impacts your ability to refinance or secure a line of credit.
3. Consult Your Mortgage Broker: Contact a broker at Esteb and Co to explore refinancing options or setting up a line of credit with one of their 83+ lenders.
4. Compare Rates and Terms: Evaluate the interest rates and terms available, ensuring the new loan terms align with your financial goals.
5. Apply for the Loan: Once you’ve chosen the best option, submit your application through your broker.
6. Purchase Your Car: Upon approval and disbursement of funds, proceed with buying your car.

Tips and Considerations

Before making a decision, consider the following expert advice:

• Longer Loan Term: Extending your mortgage for a car purchase may lower monthly payments but could increase total interest paid over time.
• Impact on Home Equity: Borrowing against your home reduces available equity, potentially affecting future borrowing power or home sale dynamics.
• Financial Discipline: Ensure you can manage the additional debt without straining your budget.
• Loan Features: Look for loans with flexible repayment options, such as extra repayments without penalties, to pay off the car component faster.

Frequently Asked Questions

• Is it cheaper to buy a car with a home loan? Generally, yes, due to lower interest rates, but consider the long-term costs associated with extended repayment periods.
• Are there risks involved? Yes, including reducing home equity and increasing total interest payments over the loan term.
• Can I use any home loan for a car purchase? Not all home loans offer this flexibility. It's best to consult with a mortgage broker to explore suitable options.
• How does refinancing work? Refinancing replaces your existing loan with a new one, ideally with better terms, which can include extra funds for a car purchase.
• What are the tax implications? Generally, interest on a home loan used for personal purposes, like buying a car, is not tax-deductible.
• Should I consult a financial advisor? Yes, a financial advisor can provide tailored advice based on your entire financial picture.