HELOC vs Personal Loan: Which is Better?

Times are tough for most Americans. with Inflation And interest rate High and a potential recession On the horizon, many of us are tightening our purse strings and looking for ways to cut corners.

Others are even exploring loans and lines of credit, either as a way to cover rising costs or as a financial safety net in case things go south.

HELOCsAlso known as a home equity line of credit, and personal loan Common options for both strategies, but the two products are not one and the same. Not sure what you should choose? Below, we’ll break down when a HELOC is probably best and when a personal loan might be the smart option

Start exploring your HELOC options here to see if it makes sense for you

When is a HELOC the best choice?

If you’re a homeowner, HELOCs are a better option “more often than not,” according to Daniel Milan, managing partner of Cornerstone Financial Services in Southfield, Michigan.

For one, HELOCs usually are Very low interest rates than personal loan. They have longer terms (meaning you have more time to pay them off) and you only pay interest on your loan. This can help keep your interest costs to a minimum.

HELOCs can also be smart if you have a low credit score because they are collateralized loans. This means the lender can foreclose on your home if you fail to make your payments.

“If you have subpar credit, it’s easy to qualify for a HELOC on a personal loan,” says Carl Holuubich, a certified financial planner and principal at Armstrong, Fleming & Moore in Washington, DC.

Finally, HELOCs can also come with potential tax write-offs And, depending on how much equity you have, usually offer larger loan amounts as well.

“If the borrower wants to take out a large amount of money, a HELOC can be a good choice,” says Kyle Enright, president of Achieve Lending in San Mateo, California. “Personal loans for as little as $50,000 can be relatively easy to find, but more than that, it can be difficult. Also, personal loan lenders may require higher interest rates for very large amounts.”

When is a personal loan the best choice?

If you need quick access to money, a personal loan can be a good choice. As Milan explains, “The advantage of personal loans is usually the speed and simplicity in which they can be completed.”

With a personal loan, you can often receive your funds within days. HELOCs usually take a month or more.

It’s also a good option if you want a fixed payment (HELOCs typically have variable interest rates and payments) and for borrowers who don’t have a home to borrow from – or who have very little equity in the property.

Personal loans can also be helpful if you need a small amount of money or you don’t want to use your home as collateral.

“Personal loans are generally unsecured, so your home is not at risk if you default,” Holuubich says. “If you have excellent credit or don’t have much equity in your home, this is often a good option.”

Explore your personal loan options here now to learn more.

HELOCs and personal loan alternatives

HELOCs and personal loan If you need money for expenses or just want a financial safety net, this isn’t your only option. If you own a home, you may be thinking about one Home equity loan. They allow you to borrow against your home equity, give you a lump sum and Spread your payments evenly over five to 30 years.

Cash-out refinancing Also options for homeowners. Cash-outs replace your existing mortgage loan with a larger loan, giving you cash back in return. This is usually a good choice if the average mortgage rate is lower than your mortgage loan rate.

Last but not least, Credit card An option, too. Just remember: They typically have higher rates than other financial products, so you’ll want to use them sparingly — and only if you have the funds to pay them off quickly.

Talk to an expert

If you’re not sure which financial product is the best move for your finances, talk to a financial advisor or mortgage broker. They can walk you through your options as well as the unique pros, cons and cost each