HELOC vs. Personal Loan: Which Is Better for Your Situation?

Need extra cash for renovations, debt consolidation, or a major purchase? Two common options are a personal loan and a home equity line of credit (HELOC). Both let you borrow money, but they work differently. Let’s compare HELOCs vs. personal loans in various real-life scenarios.

Table of Contents

1. HELOC vs. personal loan at a glance
2. When a HELOC is better
3. When a personal loan is better
4. Personal loans vs. HELOCs in real-life scenarios
   1. I’m renovating my kitchen  
   2. I need to consolidate $20K in debt
   3. I foresee recurring home repair costs
   4. I need $15,000 to fund a wedding 
   5. I’ll be paying for my child’s college tuition for the next four years
   6. I’m launching a business
   7. I’m covering urgent medical expenses
   8. I need $25K to prepare my home for sale

HELOC vs. personal loan at a glance

Personal loans offer a lump sum with regular monthly payments over the loan’s term, often one to seven years. They are typically unsecured and have a fixed interest rate.

With a HELOC, you’re borrowing against your home equity, with the home as collateral. A HELOC is a revolving credit line, similar to a credit card, so it can be more flexible than a traditional loan. HELOCs usually have a variable interest rate. The interest you pay on a HELOC may be tax-deductible if you use the funds for home improvement.

In my professional opinion, each borrower should consider their financial situation and pay stability. A HELOC is great for someone with variable pay, such as a salesperson whose income heavily depends on commissions.  Or, like me several years ago, I was paid quarterly. A HELOC provides a minimum payment, flexibility to draw more, and the ability to pay it down when I receive large sums of money.

I also generally prefer fixed loans when paying for something large and over a longer period of time.

The table below gives a bird’s eye view of our top-rated HELOC provider (Figure) versus the top-rated personal loan lender (SoFi).

	4.9 Visit Site	5.0 Visit Site
Rates (APR)	6.35% – 10.85% fixed	8.99% – 29.99% fixed (w/ all discounts)
Rates (APR)	Rates (APR)
6.35% – 10.85% fixed	8.99% – 29.99% fixed (w/ all discounts)
Term lengths	5, 10, 15, or 30 years	1 – 7 years
Term lengths	Term lengths
5, 10, 15, or 30 years	1 – 7 years
Loan amounts	$15,000 – $400,000	$5,000 – $100,000
Loan amounts	Loan amounts
$15,000 – $400,000	$5,000 – $100,000
Credit score	640+ (but 720+ is advised)	660+
Credit score	Credit score
640+ (but 720+ is advised)	660+
Secured or unsecured?	Secured (by your home)	Unsecured
Secured or unsecured?	Secured or unsecured?
Secured (by your home)	Unsecured
Tax-deductible interest?	Possibly*	No
Tax-deductible interest?	Tax-deductible interest?
Possibly*	No
Fees	Origination fee (up to 4.99%)	None required
Fees	Fees
Origination fee (up to 4.99%)	None required
	See our full lists of the best HELOC providers and the best personal loans.

*If funds are used to “buy, build, or substantially improve the residence”

When a HELOC is better

A HELOC may be a smarter choice for long-term or phased spending that requires flexibility, like:

• Home improvement projects
• Major unexpected expenses
• College tuition
• Starting a business

The HELOC (or any line of credit) provides flexibility when you don’t all the money at once and allows for larger payments if you receive a large sum.

See more HELOC uses.

When a personal loan is better

Personal loans can make more sense for fixed expenditures like:

• Credit card debt consolidation
• One-time planned expenses (for example, a wedding)
• Emergency car repairs
• Medical bills

Although personal loans tend to come with higher interest rates, it’s a straightforward borrowing choice with predictable payments and no collateral. Just be sure you’re comfortable with the consistent monthly payments.

See more personal loan use cases.

Personal loans vs. HELOCs in real-life scenarios

Here’s what we recommend in several specific scenarios.

I’m renovating my kitchen  

You’re planning a kitchen remodel that will cost around $40,000 and take place in stages over several months.

• Supposing you take a 10% fixed-rate personal loan and repay it over five years, it will cost you around $850 per month. (You can use this handy calculator to figure out monthly loan payments.)
• With a HELOC at 7% interest, you could draw whatever amount you need for the specific renovations that month. You’d pay less overall if you repay in the same time as (or less time than) the personal loan you’re considering.

I need to consolidate $20K in debt

Let’s say you’re in a similar position as the Redditor below: You have credit card debt of $20,000:

Downsides of heloc or personal loan for 20K CC debt?
byu/thereefernander indebtfree

In this example, the interest rate (APR) on your credit card is 20%, and you’re paying $450 a month. It will take 82 months (six years and 10 months) to get out of debt, and your total cost, including interest, would be $36,752.

• With a consolidation loan (personal loan) at 12.24% APR, repaid over five years in monthly installments of $446, you’d pay $26,771 over the life of the loan, saving close to $10,000.
• Could you potentially save even more if you borrow against home equity, for example, using Figure’s HELOC to consolidate debt? Maybe, but your home would be at risk if you default on payments.

I foresee recurring home repair costs

Your home needs plumbing work worth $5,000 right now. You also expect you’ll need a roof replacement that will cost around $10,000 next year, and possibly other repairs.

• If you take out a personal loan of $20,000 at a 10% interest rate with a five-year term, you’ll immediately start making monthly payments of $425.
• A HELOC would allow you to borrow what you need when you need it, accruing interest, quite possibly at a lower rate, only on the sum you use.

I need $15,000 to fund a wedding 

You’re getting married and need $15,000 to help cover catering, venue deposits, and your honeymoon.

• A personal loan at an interest rate of 10%, repaid over three years, would cost you around $485 a month.

A word of warning: Always think twice before borrowing money for discretionary expenses, like a wedding or traveling. In many cases, it’s better to save up and work with whatever amount you can afford to pay out of pocket. But if you’re convinced it’s worth borrowing, we don’t recommend putting your home at risk by taking out a HELOC for discretionary expenses.

I’ll be paying for my child’s college tuition for the next four years

Maybe you’re like the Redditor in the thread below, wondering whether you should use a HELOC, take out a loan, or even dip into your 401(k).

Pay Daughter’s College Tuition With Loan or Use HELOC/401k
byu/LuckyBlackCat4 inFinancialPlanning

• First, keep in mind that many lenders exclude college tuition from approved personal loan purposes.
• In contrast, most HELOC providers allow using funds for education. A HELOC also gives you more flexibility in covering tuition costs over time. If you need $10,000 a year and take out a HELOC at 7% interest, your monthly interest payment would only be $58.33 ([7% x $10,000]/12). However, some lenders may require minimum monthly payments even during the draw period.

I would much rather not use a HELOC for college. You can often get student loans at comparable rates without risking your home.

I’m launching a business

Securing a business loan could be tricky if you’re launching a startup like this Redditor:

Opinions on starting a business.
byu/harleysmith96 inbusiness

• If you take out a five-year personal loan of $30,000 at an 11% interest rate, you’ll be paying around $650 a month, and the loan’s total cost would be more than $10,000.
• A HELOC could offer a lower interest rate and more affordable payments, but there’s a catch: If your business fails, you might lose your home. We recommend consulting a licensed financial advisor before you tap into your home equity to start a business.

I agree. If possible, try to secure an SBA loan. Starting a business is usually risky, and I don’t like using home equity.

I’m covering urgent medical expenses

Medical bills are often time-sensitive, so a quick loan is usually more practical than a HELOC.

• If you borrow $7,000 at an interest rate of 10% to cover hospital bills, and repay the loan over two years, your monthly payment would be just over $320.

If you’ve filed an insurance claim and are expecting a payout, you might also consider pre-settlement funding, but beware of high fees.

I need $25K to prepare my home for sale

If you’re putting your home on the market, you’ll prefer to keep the title clean, with no liens or open lines of credit. Additionally, you might want to take advantage of peak house-hunting season (usually spring to early summer).

• A personal loan will give you quick funding for renovations to make your property more appealing to buyers, like an exterior repaint or landscaping. If you borrow $25,000 at 11% APR and repay the loan over five years, your monthly payment would be around $520.
• A HELOC could also provide funds for improvements, but because it’s secured by your home, you must pay off the balance when the property sells. That makes it less practical if you plan to list soon, though it may offer a lower rate and flexibility to draw only what you need.

Keep in mind that either loan will add to your debt-to-income ratio, which could affect your ability to qualify for a new mortgage right after selling.

I would generally recommend the HELOC here because if gets paid off at settlement.

Bottom line: Which loan is better for your situation?

A HELOC can be a good option if you need ongoing, flexible access to funds, for example, to pay for staged home improvements, cover major repairs, or finance tuition—as long as you’re confident you can keep up with payments.

Personal loans are typically more expensive but also quicker, more predictable, and less risky, since they don’t bind your home as collateral. These are best for one-time expenses like debt consolidation and medical bills.