Personal Finance 101: How to Use Equity for Big Expenditures

As an adult, encountering financial problems is inevitable because you can’t always prepare for the unforeseeable. This can include events like medical emergencies and consolidating debt. But falling short money-wise can also be for situations that you can plan, like your kids’ tuition or a big purchase.

There will be times when the money you have on hand won’t be enough to cover all your dues and the only options that you think you have are either to be in more debt or to borrow money. But because no one wants to be in more debt than they already are, most people will gravitate toward the latter option—borrowing.

However, that can be difficult to do when you don’t have a strong credit history. Having bad credit can make it harder for you to get approved for conventional loans, which can lead you to ponder if borrowing from loan sharks is a much better option. But that will never be the right move.

Before you lose all hope of solving your financial problems, you have to know all your options first. You might not have considered using your equity yet in this situation, when in fact, it should have been among your go-to options. That’s because the equity you have built in your home and car are untapped sources of wealth.

Many loans involve using your equity as a gauge for being approved rather than your credit score, but it can help you get approved faster if you can maintain an acceptable score. Here are three loans you can consider using to finance your big expenditures:

Auto Equity

If you need to borrow more money than a payday, personal, or installment loan can provide, your best bet will be to apply for an auto equity loan. That’s because the only limit you’ll have on this loan will be the total value of your vehicle, which means the more equity you have, the higher your limit can be.

However, it’s important to note that this type of short-term loan will use your vehicle as collateral. This means that if you fail to pay back the agreed-upon principal balance plus interest when it is due, the lender has the right to retain the ownership over your vehicle. So you have to make sure to pay in full.

That said, this loan can provide you with money when you need it without causing you too much hassle. Unlike conventional loans, you won’t have to go through the time-consuming process of credit checks, income verification, or applications to get a car title loan.

Home Equity

If you need a large sum of money immediately, what you can do is take a secured home equity loan on your house. This type of loan acts like a second mortgage on your current home, which means that you can borrow up to 80% of your home’s value minus your outstanding balance to fund other expenses.

Usually, home equity loans are used to pay for renovations or major repairs around the house. But it can also be used for debt consolidation and all other expenses you can think of, except to buy another property. You should keep in mind that if you fail to keep up with your dues, your lender can seize your house because it’s used as collateral.

Other than that, you can enjoy your lump-sum home equity loan with a fixed interest rate and fixed monthly repayment plan over the course of five to 30 years, depending on the agreement you made with your lender. If you can keep your end of the bargain, you won’t have to lose your home in the process.

Home Equity Line of Credit (HELOC)

If you want to have the ability to borrow money to fund your future expenditures as needed, your best bet will be to open a home equity line of credit or, simply, HELOC. This is because a HELOC can act like a credit card that you can fall back on when your cash on hand falls short.

Unlike a home equity loan, a HELOC will let you borrow a specific amount from your home equity, which you can access only when you need it. Typically, this borrowing period can last around 10 years, during which you will only be paying for the interest of the money you borrowed.

After the borrowing period is over, your repayment period will begin, which can last anywhere between 10 and 20 years. During this time, you can no longer take out money from your equity and you will have to pay a monthly principal balance plus interest, otherwise, you can risk losing your home.

Indeed, money makes the world go round. But it doesn’t have to dominate your entire life, especially if you know how to manage your finances like a pro. Don’t let your financial problems overwhelm you so much that you lose sight of your actionable options. Always make wise and informed decisions when it comes to handling your money.


Sudarsan Chakraborty is a professional writer. He contributes to many high-quality blogs. He loves to write on various topics.