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Consumers Using Home Equity to Buy Cars Again

March 27, 2012

The use of home equity loans to buy new cars is on the rise again, though not nearly to pre-recession levels, according to Bandon, Ore.-based CNW Research’s Art Spinella. He discussed this shift in the March 2012 Issue of CNW’s Retail Auto Summary, saying the increase in this form of financing is especially true among long-time homeowners with available equity.

To put this in context, Spinella writes that in 2007, consumers financed 11.8 percent of all new-car acquisitions with home equity loans. Even though the industry saw a huge drop in the number of consumers using this form of financing, down to a low of 4.4 percent in 2010, Spinella said he expects this number to hit a national average of 5 percent sometime this year, based on the first two months of 2012.

The U.S. states with the largest number of consumers using home equity loans to finance auto purchases were California and Florida. In California, 29.83 percent of consumers used this type of financing in 2007. Although that number dropped to 11.82 percent in 2011, CNW said it expects the use of home equity loans to rise to 12.5 percent sometime in 2012. Florida hit 19.72 percent in 2007, but saw the use of home equity loans drop to a low of 7.48 percent in 2009. Spinella said he expects it to rise to 11 percent this year. 

Even with the increase in the number of home equity loans used for auto financing, Spinella said he doubts the industry will see record pre-recession sales again. “All of the stars were aligned when the industry hit 17 million units. One star was HE loans,” he wrote. “That’s a long way from returning to its peak, and until it does, 17 million-plus is currently only a dream.”

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