Avoid Using a Home Equity Loan in These 6 Scenarios

If you want a loan to fund other things in your life, you can take a home equity loan that allows you to access cash and put your home as collateral. Even though the loan can be reliable and convenient, there are risks involved if you don’t pay the loans, and that means you risk losing your home. Before taking the loan, compare its gains and drawbacks based on why you need the loan. In the meantime, never take a home equity loan in the scenarios mentioned here.

  • Buying a Car

At no point should you take a home equity loan to purchase a car. According to financial experts, taking out this type of loan to finance a car is like taking one debt from one place to another. Unless the car will be used to generate more income, don’t use the loan to purchase it. It is a poor habit of spending your money, and if you can’t afford to repay the loan, you will risk foreclosure.

  • Paying for a Vacation

Don’t use your equity loan to fund leisure activities like taking a vacation. If you have to take a loan for leisure, it means that you are not living within your means. Taking the loan to go on a vacation increases your budget and puts you at risk of losing your house. Instead, start saving for the vacation and use the loan for other meaningful reasons.

  • Paying Off Debts

Home equity loans have lower interests than other loans or debts. However, it is not a good idea to use it to pay off debts or credit cards. The most important thing you need to do if you have a debt is to resolve the issues that lead to the debts rather than taking out the loan to pay off. This way, you will avoid being in a far much worse situation than you already are in. if you cannot continue paying off your credit card, you will realize you now have two extra debts to pay.

  • Paying for College

College offers a better chance to improve your finances in the future. However, it will be a bad idea to use your home equity loan to fund education. Look for other alternatives to pay for college but don’t risk your home.

  • Investing in Real Estate

The real estate industry is speculative, and this is why you should never use your home equity loan to invest in real estate. Investments in real estate can depreciate and this only puts you at risk of losing your house. You should use the loan to improve your home to increase its value. When a real estate goes down, recovering your money can be difficult.

  • Solving Cash Flow Issues

Generally, it is not advisable to use your home equity loan to solve your money problems. You will need to repay the loan. So, using it to pay off the debts will only put you into more debts. Instead, look for the right alternatives to solve your cash flow problems.


Using your home equity loan to fund the situations mentioned above only puts you at a higher risk of losing your home. If you have to take the loan, do it when you have a value-adding home project.