Buying a Car: Auto vs. Home-Equity Loans

Record oil prices, a bear market, and six months straight of nationwide job cuts have many folks tightening their budgets.

But some consumers have no choice but to consider buying a new car, whether they're looking for better fuel efficiency or their old jalopy finally bit the dust. Regardless of the reasons, if you're in the market for a new car, you should choose the type of financing that will keep your costs as low as possible.

Many people finance a new car purchase via either a home equity loan or an auto loan. But there are a few key numbers to consider when choosing between the two types of loan. They offer different interest rates and closing costs, and they have very different tax implications: Interest paid on your home equity loan may be tax deductible, while interest on a car loan is never deductible.

The two loan types also carry different risks: Using equity in your home to purchase a car puts your home at risk if you default on your loan. If you default on an auto loan, meanwhile, you only put your car at risk. ...