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Should I finance a car with an unused line of credit or get an auto loan?
I currently have a line of credit with my bank that stands at 6%. I want to buy a car for $30,000, but the dealer provides a rate of 3.99%. Should I use my line of credit or finance the vehicle with an auto loan? What are the pros and cons of each?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
“Buying a car with a line of credit might be a better deal, but it depends on several factors.
The first is that your minimum payment on a line of credit will fluctuate with interest rates. Therefore, you won’t be able to budget like you would with an auto loan that has the same payment every month.
In addition, buying a car with a line of credit means that you won’t get the benefits of an installment loan on your credit report.
Lines of credit are revolving loans and don’t give as much of a boost to your credit as an installment loan. If you’re looking to build credit, an auto loan is the way to go.
Finally, think of the interest.
If the dealer can give you a lower interest rate, you’re automatically saving money over the life of the loan. Just make sure that there’s no
prepayment penalty
, and you might find that you pay less by financing through the dealer.Don’t forget that when you buy a new vehicle, you will need proper coverage. Use the free
Jerry
app to help you find the best deal. Jerry compares rates from the top 50 companies in under a minute, delivering the best deals to your phone.”View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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