I recently bought a Volkswagen Golf after my Mitsubishi Eclipse was crushed by an inattentive teenager driver. Thankfully, I was able to pay cash for it using my “sinking car fund.”
If I hadn’t had the cash on hand, I would have considered three options to finance the new car: an auto loan, a home equity loan, or a home equity line of credit.
I compiled the rates offered for the three types of loans by four local banks, as listed in the table below.
Auto Loan
An auto loan is likely the most common way to finance the purchase of a new car. It tends to have the highest rate, but if you don’t own a home, it might be your only option. The good news about an auto loan is that there are usually no closing costs and the paperwork is straightforward. The bad news is that the interest paid isn’t tax deductible.
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