You can use a home equity line of credit to buy a car by writing a HELOC check to the dealership, using the linked access card, or transferring funds into your checking account and paying cash. Lenders don’t restrict how you spend draws during the draw period, so a vehicle purchase is allowed. Whether it’s a good idea is a different question, and for most buyers the answer is no: using a HELOC to buy a car strips away tax deductions a normal auto loan may offer, swaps a fixed rate for a variable one, and puts your house on the line instead of the car.
How You Pay the Dealer From a HELOC
Once your HELOC is open, you’re in what lenders call the draw period, which typically lasts 10 years.1Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit Most lenders give you access through checks, a linked card, or online transfers tied to the credit line.
For a car purchase, you have three practical options. You can write a HELOC check directly to the dealer. You can use the linked card at the point of sale if the dealer accepts it. Or you can transfer funds into your personal checking account a few days ahead and buy the car as a cash buyer, which simplifies the paperwork at the dealership and skips dealer-arranged financing entirely.
During the draw period, many HELOCs allow interest-only payments, so the monthly cost starts low.1Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit That low payment is the trap. It’s temporary, and it doesn’t touch the principal.
The Tax Deduction You Lose
This is where the HELOC route quietly gets expensive. HELOC interest is deductible only when the borrowed money is used to buy, build, or substantially improve the home securing the loan.2Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Spend the draw on a car and none of the interest qualifies, whether you itemize or not.
There is a separate deduction that might seem to fill the gap, but it doesn’t. For tax years 2025 through 2028, the One, Big, Beautiful Bill Act allows a deduction of up to $10,000 per year for interest on qualifying new-car loans.3Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors The catch is that the loan has to be secured by a lien on the vehicle itself. A HELOC is secured by your home, so it doesn’t qualify.
The net effect: financing a new car with a HELOC loses both the home mortgage interest deduction (because the money wasn’t spent on the home) and the vehicle loan interest deduction (because the debt isn’t secured by the car). A standard auto loan can claim the second. Depending on the loan size and your tax bracket, that difference can run into thousands of dollars over the life of the loan.
Variable Rate Versus a Fixed Auto Loan
Most HELOCs carry a variable interest rate, calculated by adding a fixed margin to a benchmark index, usually the prime rate.4Consumer Financial Protection Bureau. What Is a Home Equity Line of Credit (HELOC)? When the prime rate rises, so does your rate, and so does your payment.
Auto loans are almost always fixed. The payment you agree to at closing is the payment you make until the loan is paid off. As of early 2026, average HELOC rates and average new-car auto loan rates sit in a similar range, generally between the high-6% and mid-7% area. The starting rates are comparable; the difference is that the auto loan rate stays where it started and the HELOC rate can climb for however long you carry a balance.
Federal rules require your HELOC lender to disclose the lifetime maximum interest rate the line can reach.5eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans Look at that cap before you sign. The gap between the rate you’re offered today and the rate the line can charge later is often wide. Some HELOCs let you convert part of the balance to a fixed rate, though the fixed option is usually higher than the variable rate at the time you lock.
The Payment Jump When the Draw Period Ends
Interest-only payments feel manageable, and that’s the problem. When the draw period ends, typically after 10 years, you stop being able to borrow and start repaying principal and interest, usually over 10 to 20 years.4Consumer Financial Protection Bureau. What Is a Home Equity Line of Credit (HELOC)? Monthly payments often jump hard at that transition.
Take a $25,000 balance at 9%. Interest-only during the draw period runs about $188 a month. Enter a 10-year repayment period and that same balance at the same rate becomes roughly $317 a month, nearly a 70% increase. If the variable rate has climbed to 11% by then, the payment rises to about $344.
By that point, the car you bought could be a decade old. You may still be making meaningful payments on a vehicle with little resale value left. Some lenders let you make principal payments during the draw period, and if you go this route, paying down the balance while the car still has value is the safer path.
Your House Is the Collateral, Not the Car
This is the trade the tax and rate math points back to. On an auto loan, the car secures the debt; miss enough payments and the lender can repossess it. On a HELOC, your home secures the debt. Fall behind and you’re facing foreclosure, not repossession.1Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit That’s true whether the car still runs, whether you sold it, or whether it was totaled.
Federal rules do slow the process. A servicer generally cannot begin foreclosure until you’re more than 120 days behind, and during that window must evaluate you for alternatives like loan modification or a repayment plan.6eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures The protection is real, but it doesn’t change the structure of the risk: a depreciating asset is now tied to your most valuable one.
There is one small upside to the collateral setup. Because the lender’s lien is on your home rather than the car, you get the title free and clear with no bank lien on it. Registration is simpler, and you can sell the vehicle whenever you want without involving the lender or paying off a vehicle-specific loan first.
When a HELOC for a Car Might Still Make Sense
The case is narrow. If you already have a HELOC open with a low margin, plan to pay the balance off well inside the draw period rather than stretching it over 20 years, and can’t get competitive auto loan financing for some reason, the numbers can work. A large enough initial draw requirement from your lender, which can be anywhere from a few hundred dollars to $10,000, may also push you toward using an existing line for a purchase you were going to make anyway.
For a straightforward new-car purchase with decent credit, the auto loan almost always wins on the two things that matter: the rate stays fixed, and the vehicle loan interest deduction is available through 2028. The HELOC’s low draw-period payment is the feature that sells the idea and the feature that hides the cost.