Dealer Loan or Prime Eq Loan

I currently have about $12,000 left on my car loan, at a 3.9% interest rate. Would it be better to move this loan (currently through Nissan) to my prime equity line, which would have a tax deductable interest? My interest rate for my Prime equity line is floating, based on the Prime Rate. Right now its around 3.5%

Would it be worth-while to do this? Where can I find the equations that would help me figure this out?

Thanks for your help.

A lower interest rate AND tax deductable? No calculator needed here, the equity will cost much less over time. However, be aware that you are moving the liability from your car, which is securing the car loan, to your home. If you default, your home is now the collateral.

With your good rates, I doubt this will be a problem.

First of all, 3.9% is a really good rate. Second, home-equity rates based on prime are going up as the Fed raises rates--prime is now 4.25%, and your home-equity line will soon reflect the last increase. The Fed promises to raise rates even more, so it's very possible that even with tax deductions, you'll be saddled with car debt at a higher rate eventually.

Mark Solheim
Kiplinger's Personal Finance

Thanks for the help. With rates rising it does not seem to be worth the hassle. Would anyone know where I could find the mathamatical formulas that would let me see the savings/benefits of this? Or any other formulas that I would be able to see how much I am spending on interest?

The calculator at
http://partners.financenter.com/kiplinger/calculate/us-eng/auto06.fcs
can probably help. For the home-equity line rate, you could estimate your after-tax rate.

Thanks so much for the quick response. I appreciate the help!

For the difference in rate, I agree it it wouldn't be wise to move a $12,000 car loan to a variable rate HELOC. You might consider a balance transfer to 0% credit card though.

I just received an offer from Discover card for a 0% balance transfer for the life of the loan. Conditions: 1) you must make 2 purchases/month starting in January 2005 (no minimum purchase amount) and, 2) balance transfer fee of up to $50. I'm still working the phones trying to get them to waive the transfer fee, but I'm seriously considering taking advantage of it. The key is to only make very minor purchases (e.g. $1.00 soda) after the balance transfer as they will always apply payments to the 0% portion first...in other words, minimal card use only as you'll incur interest costs on purchases.

Not something everyone should do, but if you have the self-discipline and good credit, it can work for you.