Home Equity Loan – Buy a Car When Banks Say No

Are you considering buying a car and wondering if tapping into your home equity might be a smart move? You're not alone. Many Australians are exploring this option as a way to access funds at potentially lower interest rates compared to traditional car loans. In this guide, we'll explore whether you can use a home equity loan to buy a car, and provide you with all the information you need to make an informed decision.

Understanding Home Equity Loans

Home equity loans allow you to borrow against the equity you've built in your home. Equity is the difference between your home's current value and the amount you still owe on your mortgage. For instance, if your home is valued at $700,000 and you owe $400,000, you have $300,000 in equity. A home equity loan allows you to access a portion of this equity as a lump sum, often with a competitive interest rate.

Interest Rates, Requirements, and Options

When considering a home equity loan to purchase a car, it’s crucial to understand the current market conditions and lender requirements. As of 2026, interest rates for home equity loans in Australia typically range from 6.49% to 12%, depending on factors like the loan amount, term, and your credit profile.

Eligibility generally requires:

• A certain level of equity in your home—usually at least 20%.
• Proof of stable income and good credit history.
• Meeting the lender's debt-to-income ratio requirements.

With over 83 lenders in our Esteb and Co panel, we can help you find a product that meets your specific needs, whether you're after a fixed or variable rate loan.

Steps to Using a Home Equity Loan to Buy a Car

Here's a step-by-step guide to using a home equity loan to finance your car purchase:

1. Assess Your Equity: Determine how much equity you have in your home. A property valuation might be required by your lender.
2. Evaluate Your Financial Situation: Ensure you can comfortably meet the repayments on the new loan.
3. Shop for Lenders: Use Esteb and Co’s wide network of over 83 lenders to find the best terms.
4. Application: Submit your loan application along with necessary documentation, such as proof of income and credit history.
5. Loan Approval and Settlement: Once approved, the funds will be disbursed to your account, ready for your car purchase.
6. Purchase Your Car: With funds in hand, negotiate the best deal on your new or used car.

Tips and Considerations

Here are some expert tips to consider before proceeding:

• Long-term Impact: Remember that extending your mortgage for a non-property purchase could mean paying more in interest over the life of the loan.
• Interest Rate Fluctuations: Be aware of potential rate changes if you opt for a variable rate loan.
• Tax Implications: Consult with a tax professional to understand any tax consequences of using home equity for non-property purposes.
• Alternative Options: Consider if a traditional car loan or personal loan might be more suitable for your needs.

Frequently Asked Questions

• Can I use all my home equity to buy a car?
  Typically, lenders will allow you to access up to 80% of your home's value, less the amount you owe.
• What are the risks of using home equity for a car purchase?
  The main risk is that you're increasing your mortgage debt, which could impact your financial stability if circumstances change.
• Is it better to use a home equity loan or a car loan?
  This depends on your personal financial situation, interest rates, and how quickly you can repay the loan.
• How long does it take to get a home equity loan?
  Approval and settlement can take a few weeks, depending on the lender and the completeness of your application.
• Can I refinance my home equity loan later?
  Yes, refinancing is an option if you find more favourable terms in the future.
• What happens if I sell my home?
  If you sell your home, the outstanding balance of your home equity loan will need to be repaid from the sale proceeds.