Using your home loan to buy a car gets you a lower rate than most car loans, but it only saves money if you repay the car amount quickly. Spread over the rest of a 30-year mortgage, a $40,000 car costs about $46,000 in interest at 6%. Repaid over five years, the same amount costs about $6,400.

A $40,000 car at the 6% example rate
How it is repaid Monthly Total interest
Added to the mortgage over 30 years $239.82 $46,335
Added to the mortgage, repaid over 5 years $773.31 $6,399

What are the ways to use your home loan for a car?

  • Redraw money you have already paid ahead on the loan.
  • Use savings in an offset account, which is your own money.
  • A top-up, where the lender increases the loan; it needs an application and often a valuation.
  • A refinance that adds the car amount to a new loan.

The article on top-up loans and refinancing explains the last two.

Why can it cost more than a car loan?

Because of the term, not the rate. A car loan is usually repaid over about five to seven years. Added to a mortgage with decades left, the car is paid off long after it has been sold. Unless you increase your repayments to clear the car amount over a few years, the lower rate is outweighed by the longer time.

How does it affect your borrowing power?

Any car finance counts against what you can borrow. Lenders include the actual repayment of a car loan. A repayment of $773 a month reduces a home loan borrowing limit by roughly $96,000 when assessed at a 9% rate over 30 years. If you are planning to buy a home soon, the order matters: the guide to borrowing power explains why buying the car after settlement often helps.

Is the interest tax deductible?

Only to the extent the car is used to earn income, such as a business vehicle. Redrawing from a loan on a rental property to buy a private car does not make that interest deductible, and it mixes private and investment borrowing in one loan. Keep a separate split for anything with a different purpose. Business vehicles are often better financed through asset finance.

When does using the mortgage make sense?

  • You have savings in an offset and would otherwise pay a higher car loan rate.
  • You will repay the car amount over a few years, with a higher repayment on a separate split.
  • You are not buying another property soon, so the extra debt does not get in the way of a new application.

It makes less sense if the only way to afford the car is to spread it over the remaining mortgage term, or if you are about to apply for another home loan.

What does a lender ask for a top-up?

A top-up is a new credit application. Expect the lender to ask what the money is for, check your income and expenses again, and often order a valuation to confirm your equity. If the loan would go above 80% of the property’s value, lenders mortgage insurance may apply to the whole loan, which can make a small top-up expensive. In that case a separate car loan may cost less overall.

What is the cleanest way to do it?

  1. Use offset savings if you have them, and rebuild the balance.
  2. If you redraw or top up, put the car amount in a separate split.
  3. Set the repayment on that split to clear it in three to five years.
  4. Do not let the car amount sit on the full mortgage term.

Questions people ask

Can I redraw from my home loan to buy a car?

Usually yes, if your loan has redraw and you are ahead. Check for redraw fees and minimums, and remember redrawn money increases the balance again.

Is a home loan top-up cheaper than a car loan?

The rate usually is. The total cost depends on how quickly you repay it.

Will a car loan stop me getting a home loan?

Not usually, but it reduces how much you can borrow by roughly 125 times the monthly repayment at a 9% assessment rate.

Can I extend or refinance my home loan to buy a car?

Yes, many lenders allow a top-up or a refinance with extra cash for a car, subject to your equity and income. Redraw is quicker if you have paid ahead. Either way, set the car amount up as a separate split so you can repay it over a few years rather than 30.

Charles Touma works out whether a top-up, redraw or separate loan fits best, and how to keep it from stretching over decades. A free 30-minute call covers the options. General information only, not credit or tax advice. Example figures use the 6% example rate.

Sources: Moneysmart, car loans, comparing car finance; Moneysmart, home loans, redraw and offset, checked 18 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.