📋 What You'll Learn
Home Equity Loan vs Personal Loan: Complete Comparison
| Feature | Home Equity Loan | Personal Loan |
|---|---|---|
| Interest Rate (Dec 2025) | 7-10% | 10-36% |
| Loan Amount | $10,000-$500,000+ | $1,000-$100,000 |
| Repayment Term | 5-30 years | 1-7 years |
| Collateral Required | Yes (your home) | No |
| Approval Time | 2-6 weeks | 1-7 days |
| Credit Score Needed | 620-680+ | 580-660+ |
| Closing Costs | 2-5% of loan | 0-8% origination fee |
| Tax Deductible Interest | Yes (if used for home improvement) | No |
| Risk if You Can't Pay | Could lose your home | Credit damage, collections |
Home Equity Loans Explained
A home equity loan lets you borrow against the equity you've built in your home. You receive a lump sum and repay it with fixed monthly payments over a set term.
How Home Equity Loans Work:
Your Home Value: $400,000
Current Mortgage Balance: $250,000
Your Equity: $150,000
Max Borrowable (80% LTV): $320,000 - $250,000 = $70,000
Home Equity Loan Pros:
- Lower interest rates — Secured by your home, so lenders offer better rates
- Fixed rate and payment — Predictable monthly payments
- Large loan amounts — Borrow $50K, $100K, or more
- Long repayment terms — Up to 30 years for lower monthly payments
- Tax-deductible interest — If used for home improvements (consult a tax pro)
Home Equity Loan Cons:
- Your home is at risk — Default could lead to foreclosure
- Closing costs — Appraisal, title search, origination fees (2-5%)
- Slower process — Appraisal and underwriting take 2-6 weeks
- Requires equity — Need at least 15-20% equity to qualify
- Second lien — Adds another payment and lien on your home
🏠 Home Equity Loan vs HELOC
A home equity loan gives you a lump sum with fixed payments. A HELOC (Home Equity Line of Credit) works like a credit card—you draw what you need, when you need it, with variable rates.Learn more about HELOCs →
🔍 Compare Home Equity Loan Rates
See what rates you qualify for from multiple lenders. Takes 2 minutes, no impact to credit score.
Compare Home Equity Rates →Personal Loans Explained
A personal loan is an unsecured loan—meaning you don't put up collateral. You borrow a fixed amount and repay it with fixed monthly payments, typically over 1-7 years.
Personal Loan Pros:
- No collateral required — Your home isn't at risk
- Fast funding — Get approved in hours, funded in days
- Simple process — No appraisal, title search, or complex paperwork
- Fixed rate and payment — Predictable monthly payments
- Use for anything — No restrictions on how you use the money
Personal Loan Cons:
- Higher interest rates — 10-36% vs 7-10% for home equity
- Smaller loan amounts — Most max out at $50K-$100K
- Shorter terms — 1-7 years means higher monthly payments
- Origination fees — Some lenders charge 1-8% upfront
- Not tax-deductible — Interest is never deductible
Who Offers Personal Loans?
Banks
Traditional banks, often best rates for existing customers
Credit Unions
Member-owned, often lower rates and fees
Online Lenders
Fast approval, competitive rates, easy comparison
When to Use Each Loan Type
✅ Choose Home Equity Loan When:
- You need a large amount ($25K+)
The rate savings justify the closing costs
- You're doing home improvements
Interest may be tax-deductible
- You want lower monthly payments
Longer terms spread out the cost
- You have significant equity
At least 15-20% equity to qualify
- You can wait 2-6 weeks
The process takes time
✅ Choose Personal Loan When:
- You need money fast
Funding in days, not weeks
- You're borrowing a smaller amount
Under $25K, closing costs may not be worth it
- You don't own a home (or have little equity)
No collateral required
- You don't want to risk your home
Peace of mind matters
- You plan to pay off quickly
Shorter term = less total interest
Real Cost Comparison: $30,000 Loan
Let's compare the actual cost of borrowing $30,000 with each loan type:
| Factor | Home Equity Loan | Personal Loan |
|---|---|---|
| Loan Amount | $30,000 | $30,000 |
| Interest Rate | 8.50% | 12.38% |
| Term | 10 years | 5 years |
| Monthly Payment | $372 | $673 |
| Total Interest Paid | $14,640 | $10,380 |
| Closing Costs (~3%) | $900 | $0-$600 |
| Total Cost of Borrowing | $15,540 | $10,380-$10,980 |
🤔 Wait, the Personal Loan Costs Less?
In this example, yes—because of the shorter term. Even though the rate is higher, you pay interest for half as long. But the monthly payment is $301 higher. If you can't afford $673/month, the home equity loan's lower payment might be necessary.
Same Term Comparison (5 Years):
Home Equity Loan (8.50%, 5 years)
Monthly: $614
Total Interest: $6,840
+ Closing Costs: $900
Total Cost: $7,740
Personal Loan (12.38%, 5 years)
Monthly: $673
Total Interest: $10,380
+ Origination Fee: $600
Total Cost: $10,980
Home Equity Loan Saves: $3,240 over 5 years
How to Choose: Decision Framework
Step 1: How Much Do You Need?
$25,000+
Home equity loan likely makes sense
Under $25,000
Personal loan may be simpler/cheaper
Step 2: How Fast Do You Need It?
Within 1 week
Personal loan is your only option
Can wait 2-6 weeks
Home equity loan is viable
Step 3: What's Your Risk Tolerance?
Don't want to risk home
Personal loan keeps your home safe
Confident in repayment
Home equity loan saves money
Step 4: What's the Money For?
Home improvements
Home equity = tax-deductible interest
Anything else
Either option works; compare rates
💰 Ready to Compare Your Options?
See what rates you qualify for on both home equity loans and personal loans. Compare offers from multiple lenders in minutes.
❓ Frequently Asked Questions
Is a home equity loan better than a personal loan?
For large amounts ($25K+) and longer terms, home equity loans typically save money due to lower rates. For smaller amounts or when you need money fast, personal loans may be better. The "best" option depends on your specific situation.
Can I get a home equity loan with bad credit?
Most lenders require a credit score of 620-680+ for home equity loans. If your credit is lower, you may still qualify but at higher rates. Some lenders specialize in bad credit home equity loans, but be cautious of predatory terms.
How much equity do I need for a home equity loan?
Most lenders require at least 15-20% equity remaining after the loan. For example, if your home is worth $400,000, you'd need to keep at least $60,000-$80,000 in equity, meaning your total mortgage debt (first mortgage + home equity loan) can't exceed $320,000-$340,000.
Can I use a personal loan for home improvements?
Yes, you can use a personal loan for anything, including home improvements. However, the interest won't be tax-deductible like it would be with a home equity loan used for the same purpose.
What happens if I can't repay a home equity loan?
Since your home is collateral, the lender can foreclose if you default. This is the biggest risk of home equity loans. With a personal loan, you'd face credit damage and collections, but your home wouldn't be at risk.