A line of credit can be a convenient way of borrowing money. They can easily be applied for online via your banking institution, and can often be granted to anyone, with any credit history! What the banks don’t tell you is that with great cost, comes great responsibility. Lines of credit have their own disadvantages, so it’s best to understand the fine print before deciding to spend that cash on something like a vehicle purchase.
Lines of credit can be a great tool to use for emergency situations if you need a little more money than your bank account has. This is why they can be useful for unexpected expenses, like a costly house repair, or large renovation but lines of credit often aren’t the best solution for car purchases. Here are our top 6 reasons why you shouldn’t use your line of credit to purchase a vehicle:
Floating interest rate that fluctuates with Prime.
This can result in variable payments. Everyone wants to know their interest and terms, right? If you want a steady and secure vehicle payment, it’s better to use dealership financing.
The bank has the right to withdraw money from your account to pay for your line of credit.
When you finance your vehicle at Formula Honda, payment withdrawal dates are pre-determined. By paying your vehicle payments on time, you can feel comfortable and ensure payment stability that keeps your bank account at ease.
Secured Lines of Credit are secured by your home.
That means any default of payment for any reason allows the bank to take your home.
A line of credit is a re-branded second mortgage.
Since many lines of credit are usually secured by your home, that means you owe more than your mortgage. If you purchase a vehicle using a line of credit, and unable to make a payment for any reason you will be eligible to lose more than just your vehicle.
Any perceived increase in risk to the security and the bank can demand full payment.
Your bank has the right to demand payment in full at their discretion at any time, with or without cause. If you do not have the cash to pay off your line of credit they can and will use their “Right to Offset”.
Terms and conditions of a Line of Credit are not designed for Automotive purchases due to the depreciation factor.
Why over pay for your vehicle purchase? Automotive specific financing can be found at your local dealership, and better reflect the value of your purchase.
Just remember, there are many options when it comes to financing your vehicle at Formula Honda. We offer competitive interest rates that will often be better than your personal line of credit, and we work with your banking institution.
Ask how our on-site Financial Service Managers can save you some money when financing or leasing your vehicle. Give us a call at +1 (416) 754-4555.