Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page. Home Equity HELOCs HELOC vs. Personal Loan: Which Option Fits Your Financial Goals? Updated Jan 10, 2025 4-min read Expert Approved Expert Approved This article has been reviewed by a Certified Financial Planner™ for accuracy. Written by Alene Laney Written by Alene Laney Expertise: Credit cards, mortgages, loans Alene Laney is a personal finance writer specializing in credit cards, mortgages, and consumer financial products. A credit card rewards enthusiast and mother of five, Alene enjoys sharing money-saving and money-making strategies. Learn more about Alene Laney Reviewed by Erin Kinkade, CFP® Reviewed by Erin Kinkade, CFP® Expertise: Insurance planning, education planning, retirement planning, investment planning, military benefits, behavioral finance Erin Kinkade, CFP®, ChFC®, works as a financial planner at AAFMAA Wealth Management & Trust. Erin prepares comprehensive financial plans for military veterans and their families. Learn more about Erin Kinkade, CFP® When you’re in need of funds, you might find yourself comparing a home equity line of credit (HELOC) and a personal loan. Both options can help you finance large expenses, but they work differently. A HELOC leverages your home’s equity as collateral, offering lower rates but with risks to your property, while a personal loan provides unsecured funds at higher interest rates. Choosing between the two depends on your financial goals and comfort with risk. Let’s dive into the details. Table of Contents What is a HELOC? What is a personal loan? HELOC vs. personal loan comparison How to decide between a personal loan and a HELOC FAQ What is a HELOC? A HELOC is a revolving credit line secured by the equity in your home. It allows you to borrow up to a specific limit during a draw period, typically 5 to 10 years, where you may make interest-only payments. After the draw period, the repayment period begins, lasting 10 to 20 years, during which you’ll pay back principal and interest. Best for: Homeowners with significant equity who want flexible access to funds for ongoing projects or expenses. Biggest risk: If you default, the lender can foreclose on your home. What is a personal loan? A personal loan is an installment loan that provides a lump sum upfront. These loans typically have fixed interest rates and terms ranging from six months to seven years. They are unsecured, meaning they don’t require collateral, which results in higher interest rates compared to HELOCs. Best for: Borrowers who need a set amount of money upfront and want predictable monthly payments. Biggest risks: Higher rates; monthly payments can strain budgets if not planned carefully. HELOC vs. personal loan comparison FeatureHELOCPersonal loanInterest ratesLower, often variableHigher, often fixedCollateral requiredYes—your home is collateralNoLoan amountBased on your home equityBased on your home equityRepayment termsDraw period (interest only) followed by repaymentFixed monthly paymentsLoan distributionWithdraw as needed during draw periodLump sum upfrontEligibilityRequires sufficient home equityCredit-based Tip Compare rates from our highest-rated lenders below: HELOC rates (APR)Personal loan rates (APR)Figure: 6.55% – 15.95%Credible: 6.94% – 35.99%Aven: 6.99% – 15.49%SoFi: 8.99% – 29.99%Bethpage FCU: 12-month intro rate of 6.99% for VantageScores of 720+; then a variable rateUpgrade: 9.99% – 35.99% How to decide between a personal loan and a HELOC Choosing the right option depends on your financial situation and goals. Here’s how to decide: 1. Assess your comfort with collateral If you’re comfortable using your home as collateral and want lower rates, a HELOC might be ideal. If you’d rather not risk your home, a personal loan is a safer option. 2. Evaluate your financial needs Choose a HELOC if you need flexibility and access to funds over time. Opt for a personal loan if you need a fixed sum for a one-time expense. 3. Consider your repayment preferences A HELOC offers interest-only payments initially but may result in higher payments later. A personal loan provides predictable monthly payments for budgeting. A HELOC is often better for individuals who don’t need a lump sum upfront and may not need the entire amount they are approved for—and, therefore, aren’t required to pay back the entire approval amount. A HELOC is more favorable during low-interest-rate environments and for those who have the flexibility in their budget for variable-rate payments (specifically increased interest rates) on a HELOC. A personal loan may be best for those who need a lump sum upfront, prefer a fixed payment plan (and even more so when interest rates are low!), and don’t want to collateralize their home or don’t own a home. Erin Kinkade , CFP®, ChFC® Tip The interest on a HELOC may be tax-deductible if the funds are used to improve your home. Personal loan interest, however, is not tax-deductible. Be sure to consult a tax advisor to understand potential benefits. Next steps Think a HELOC may be best for you? Check out the best HELOCs based on our editorial ratings. (Figure, our top-rated lender, offers a fixed-rate HELOC.) Is a personal loan your better bet? Make an informed decision by reviewing our list of the best personal loans. (We recommend starting with Credible, a personal loan that will show you several prequalified offers without damaging your credit score.) FAQ Can I take out a personal loan and a HELOC at the same time? Yes, but applying for both simultaneously could affect your creditworthiness. Consider whether you truly need both types of financing. What happens if I default on a HELOC or personal loan? For a HELOC, the lender may foreclose on your home. For a personal loan, the lender can pursue legal action, but your assets are not directly at risk. Can I use a HELOC or personal loan for any purpose? Yes, but the lender may ask about the loan purpose during the application process. HELOC funds used for home improvement may offer tax benefits.