Nicholas Scheibner is quoted on this topic in an article in NJMoneyHelp.com by Karin Price Mueller, originally published on August 22, 2019.
A 60-second read by Nicholas Scheibner: If you are considering an additional car purchase (for your child or for yourself), there are several financing options that you may want to consider to determine the best way to pay for the car. Here are some pros and cons of the possible options:
- Emergency Fund: With interest rates so low, taking money from an emergency fund or investment account at this time may not be the best financial option available. Remember, with a loan, you can always use the money from your emergency fund to pay it off if you decide you change your mind later down the road. However, once you use the cash from the emergency fund, it’s gone.
- HELOC: A home equity line of credit is a great tool to have for emergencies or home repairs as long as interest rates remain low. The interest rate will be adjustable, so if you plan on keeping the loan for a long time, the payments may rise in the future. In the past, the benefit of using a HELOC was the tax deductibility of interest payments. Note: with the new tax law, if the HELOC is not used for expenses for the home, it will not be tax deductible.
- Getting a Standard Car Loan: You can also consider putting the loan in your child’s name if they can qualify. This may be a benefit to their credit score later on in life as a way to build credit history. Car loan interest rates are very low, and many dealerships are still offering 0% financing.
- Cash-Out Refinance: This would be a good time to look at your overall financial picture, and your current mortgage or home expenses if you have any coming up. A cash-out refinance may be a good option if your mortgage rate currently is over 5%, or you have other debts that have piled up, or your need to do some home repairs. With interest rates so low, you can lock in a long-term low interest rate. If you currently have a mortgage, a cash-out refinance would pay off the existing mortgage and give you extra cash to buy the car for your son, or, as an example, update the bathroom you’ve been contemplating. In addition, you must take into consideration any closing costs. This would not be the best option to simply purchase the $10,000 car alone.
As always, any financial decision should be made with your full financial picture in mind. Consult your financial advisor, as they may have even more options available to you that you did not think of.
For any questions, please contact your Baron Team.