Personal loan vs home equity loan.
Both are fixed installment loans with predictable monthly payments. The home equity loan typically wins on price (your house is collateral, so the lender risks less) but loses on flexibility, speed, and the size of the downside if you cannot pay. A home equity loan that defaults can mean foreclosure; a personal loan that defaults damages your credit but cannot take the house.
Personal loan vs Home equity loan
| Attribute | Personal loan | Home equity loan |
|---|---|---|
| Collateral | None (unsecured) | Your home (secured) |
| APR range (typical) | 5.99% to 35.99% | 7% to 12% |
| Loan amount | $100 to $50,000 | Up to 85% of home equity |
| Term | 3 to 72 months | 5 to 30 years |
| Closing costs | $0 to 8% origination | 2% to 5% of loan amount, plus appraisal |
| Time to fund | Next business day | 4 to 8 weeks |
| Worst-case risk if you default | Credit damage and collections | Foreclosure on your home |
| Tax treatment | Interest never deductible for personal use | Interest may be deductible if used for substantial home improvement (post-TCJA) |
| Closing cost recovered in | Immediate (low or no fees) | 24 to 36 months of interest savings, typically |
Which wins, when.
- 01
Borrowing $30,000+ for a major home renovation
Winner: Home equity loan
Lower APR and possible tax deduction make the closing-cost outlay worth it for large, long-term borrowing tied to the property.
- 02
Borrowing $5,000 for any non-home purpose
Winner: Personal loan
Closing costs alone on a home equity loan would eat the APR savings, and you would be securing a small debt with your house.
- 03
You need funds in under a week
Winner: Personal loan
Home equity loans require appraisal and underwriting; personal loans fund in days.
- 04
You worry about job security or future income volatility
Winner: Personal loan
An unsecured default damages credit. A secured default can cost you the house.
Frequently asked.
Is a home equity loan the same as a HELOC?+
No. A home equity loan is a fixed-rate lump sum repaid in equal installments. A HELOC is a revolving line of credit with a variable rate. Both use your home as collateral, but the cash-flow profile and risk differ. See our separate personal-loan-vs-HELOC comparison for that side.
How much equity do I need?+
Most lenders require you to retain at least 15 to 20% equity in the home after the new loan. If your home is worth $400,000 and your mortgage balance is $250,000, you have $150,000 of equity; you might borrow up to about $90,000 to $120,000 depending on the lender's combined LTV ceiling.
Are home equity loan interest payments tax-deductible?+
Only if the loan is used to 'buy, build, or substantially improve' the home that secures the loan, per the Tax Cuts and Jobs Act (2017). Interest on funds used for debt consolidation, tuition, or other non-home purposes is not deductible. Consult a CPA on your specific use.
What credit score do I need?+
Home equity loans typically require a FICO of 660+ and a debt-to-income ratio under 43%. The best pricing usually requires a 720+ score.
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