Home Equity loan or Auto Loan -- hidden costs?

From: "Rao, Bharat" <bharat@scr.siemens.com>
Subject: Home Equity loan or Auto Loan -- hidden costs?
Date: Mon, 11 May 1998 17:18:28 -0400

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A quick question: I'm going to buy a new car, and plan to put
down about half in cash, and finance the rest (and pre-pay the
loan off quickly with 12-16 months).  I originally intended
to get a car loan, but a friend suggests that I get a home-equity
line of credit (because I'd get an effective 30% rebate on the
rate, due to its being tax-deductibe).  I just refinanced my house
and have a 80% LTV, and getting just 5-8% more line of credit
should be enough, and then to pay it off fast -- in 6-12 months.

The question I have though is that are their any hidden costs 
associated with home equity loans?  (Fees, early payment
costs, etc.?) One thing I have seen is that the home equity
loans often have an introductory rate (as low as 6% in some
cases) so if there was no cost associated with pre-paying 
the loan (and no closing/settlement costs), whats to prevent
someone from taking a short loan at 6% with the intention
of paying it back in full in 6 months -- and repeating --
essentially getting a 6 month line of credit at v. low interest.

There's got to be some catch to this (I think) -- so I'm going
to research this to see if this is really possible -- but I'd
appreciate any feedback.

Thanks

Bharat


R. Bharat Rao             E-mail: bharat@scr.siemens.com 
Adaptive Information & Signal Processing, Siemens Corporate Research
US Mail: 755 College Road East, Princeton, NJ 08540
Phones: (609)734-6531(O) (609)734-6565(F) 


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