22 Aug I’m buying a car for my son. How should I pay for it?

Q. I’m buying a $10,000 car for my son to use for his senior year of high school. I could take the money from a HELOC or I could take from my emergency fund, which has $25,000. Which should I choose?
— Mom

A. How you pay for a car can add to the overall cost of the car because of interest payments – interest that you pay, or interest that you forgo.

Depending on your finances, you may have additional options to pay for the car, said Nicholas Scheibner, a certified financial planner with Baron Financial Group in Fair Lawn.

You mentioned your 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,” Scheibner said. “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, it’s gone.”

So a standard car loan might be a good move.

Scheibner said car loan interest rates are very low, and some dealerships still offer zero percent financing. You can also consider putting the loan in your son’s name if he qualifies because this can help him build a credit history that will help him later in life.

Your home equity line of credit (HELOC) is a great tool to have for emergencies or home repair needs as long as interest rates remain low, Scheibner said. 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,” he said. “With the new tax law, if the HELOC is not used for expenses for the home, it will not be tax deductible.”

The final option to consider is a cash-out refinance.

Scheibner said now is a good time to look at your overall financial picture and your current mortgage or home expenses.

“A cash-out refinance may be a good option if your mortgage rate currently is over 5 percent or you have other debts that have piled up, or you need to do some home repairs,” he said.

You can lock in a low interest rate for the long term, pay off your existing mortgage and take out cash to pay for the car, pay for home improvements or pay off higher interest debt, he said.

But take closing costs into consideration. If you only need money for the car, a refinance isn’t the way to go, he said.

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This story was originally published on Aug. 22, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.