Why Using a Line of Credit to Buy a Car Might be a Bad Idea

Why Using a Line of Credit to Buy a Car Might Be a Bad Idea

When it comes to purchasing a vehicle, there are many financing options available. One of the lesser-used—but often tempting—choices is tapping into a line of credit, such as a home equity line of credit (HELOC) or a personal line of credit. While this method might seem convenient and flexible, it carries several risks that car buyers should seriously consider before moving forward.

In this blog, we’ll explore the disadvantages of using a line of credit to purchase a car and why traditional auto loans might be a safer bet.

1. Lines of Credit Typically Have Variable Interest Rates

Unlike many car loans that offer fixed interest rates, most lines of credit come with variable interest rates. This means that while your payments might be manageable at first, they can increase over time if interest rates rise.

Example: If you take out $25,000 from a HELOC at 6%, but interest rates rise to 8% a year later, your monthly payments could increase significantly—without any warning.

This unpredictability can lead to financial stress, especially if your budget is already tight.

2. You’re Risking Your Assets

If you're using a secured line of credit—like a HELOC—you're putting your home at risk. If you fail to repay the loan, the lender can foreclose on your house.

Buying a depreciating asset (a car) with an asset-backed loan (like your home) is risky financial behavior.

A car loses value over time, but your home doesn’t (usually). Tying a long-term, appreciating asset to short-term consumer spending can lead to long-term financial damage.

3. Temptation to Borrow More

Lines of credit work much like a credit card—you can borrow, repay, and borrow again. This flexibility can make it easy to overspend.

Instead of sticking to a set budget (as you would with an auto loan), you might be tempted to upgrade to a more expensive car or add luxury features, thinking, “I can afford a little more.”

This mindset can snowball into unnecessary debt.

4. No Structured Repayment Terms

Traditional auto loans come with clear repayment terms—fixed monthly payments over a set number of years. This structure helps people stay disciplined with their payments and makes budgeting easier.

Lines of credit don’t always offer this structure. Payments can fluctuate, and some people end up only paying interest, never reducing the principal. This leads to longer repayment periods and higher total interest costs.

5. Depreciation Doesn’t Match Your Repayment

A car begins losing value the moment you drive it off the lot—usually around 15% to 20% in the first year alone. If you're using a line of credit and not aggressively paying it down, you may find yourself owing more than the car is worth—a situation known as being "upside down."

This can become a real issue if you need to sell the car or if it gets totaled in an accident.

6. It Can Impact Your Credit Utilization

Using a large portion of your available line of credit to purchase a car can spike your credit utilization ratio—a key factor in your credit score. Higher utilization can negatively affect your credit, even if you’re making payments on time.

This can make it harder to qualify for other loans or favorable interest rates in the future.

Final Thoughts: Choose the Right Tool for the Job

A line of credit can be a powerful financial tool—but it’s not always the right one for buying a car. Cars are depreciating assets that are best financed through loans designed specifically for them. Auto loans offer lower rates, fixed terms, and less risk to your home or financial health.

If you're considering using a line of credit to buy a car, ask yourself:
“Is this the smartest way to finance a vehicle—or just the most convenient?”

In most cases, the risks far outweigh the benefits.