Loan Loser: Home-Financing a Car

The savings are even less with a home equity line of credit. That's because the interest rate for a line of credit is higher. The average interest rate on a home equity line of credit is 8.13 percent. If you take the interest deduction, your effective rate would be 6.10 percent. But again, to make it worth the trouble, you have to make extra payments. Even with the interest tax deduction, you may find better auto loan rates if you have a good credit history and shop around.

Considering a 30-year cash-out refinancing to buy a car or pay off the balance on an auto loan? With rates at about 6.2 percent, your effective interest rate if you itemized would be 4.65 percent. But don't forget that with a refinance you have to factor in closing costs, which average about $3,000, according to Bankrate.com. Of course, you wouldn't allocate all the closing cost to the car loan, Taylor points out, but you still have to consider that expense to determine if you're really saving money.

"For you to do a cash-out refinancing it has to make sense on its own, such as you are getting a lower interest rate," Taylor said. "Buying a new car on its own isn't a reason to refinance your first mortgage."

Whenever someone wants to know what I think about using home equity to purchase or pay off a car, I ask this: "Have you done the math?"

"Well, um, you get a tax deduction," the person always responds.

That, of course, means no, he hasn't done the math.

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

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