Published July 15, 2011
Dear Driving for Dollars,
I need a new car and I'm undecided if I should buy or lease. If I buy, I will use a home equity loan at 2.49% to finance the car. Which is better?
Leasing a new car can be good choice as long as you are sure you won't exceed the mileage limits of the lease contract and you keep your car in top-notch shape. If either of those things are issues for you, then you could face hefty surcharges at the end of your lease. If they are not problems, then you may want to lease a new car. However, look at Bankrate's story on the four factors to consider in car leasing before you make your decision.
For most people, buying a new car is the better financial choice, assuming you can afford to buy something you'll enjoy driving for the long term. If you buy a new car with good resale value, take good care of it and negotiate a good purchase price, you will effectively have a nice down payment when you sell or trade it for something else.
Keep in mind if you buy a new car using an existing home equity loan or by tapping into a home equity line of credit, you may be able to deduct the interest on your taxes. But if you get behind in your payments, you could face foreclosure, because the loan is secured by your home. In addition, by using a home equity loan, you may be financing your purchase for far longer than the typical terms of a car loan, which could result in you spending more money overall than if you obtained a car loan.