HELOC vs. Personal Loan: Which Is Better for You?

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

1. What is a HELOC?
2. What is a personal loan?
3. HELOC vs. personal loan comparison
4. How to decide between a personal loan and a HELOC
5. FAQ

What is a HELOC?

A HELOC is a revolving credit line secured by the equity in your home. Traditionally, it allows you to borrow up to a specific limit during a draw period—typically 5 to 10 years—where you can make interest-only payments and borrow as needed.

However, many modern HELOC lenders now require you to withdraw the full amount upfront at origination. As you repay the HELOC during the draw period, you may be able to redraw funds—often at a new fixed rate each time—offering a hybrid of lump-sum access and revolving flexibility.

After the draw period ends, you enter the repayment period, which typically lasts 10 to 20 years and includes both principal and interest payments.

• 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

Both HELOCs and personal loans can be used for similar purposes—home improvements, debt consolidation, major purchases—but the way you access funds, repay them, and how much interest you pay can vary widely.

One of the biggest differences? Cost. Personal loan interest rates can soar—especially if you don’t have excellent credit.

The national average rate for a personal loan is 12.58%, compared to 8.14% for a HELOC. In some cases, personal loan rates can exceed 35%, making them one of the most expensive mainstream loan types.

Here’s how HELOCs and personal loans compare at a high level:

Feature	HELOC	Personal loan
Interest rates	Lower, often variable or fixed with each draw	Higher, often fixed
Collateral required	Yes—your home is collateral	No
Loan amount	Based on your home equity	Based on your home equity
Repayment terms	Draw period (interest only) followed by repayment	Fixed monthly payments
Loan distribution	Withdraw as needed during draw period	Lump sum upfront
Eligibility	Requires sufficient home equity	Credit-based

Below is a snapshot comparing two top-rated lending products—one HELOC and one personal loan—so you can get a sense of the actual numbers and differences in eligibility, rate ranges, and loan structure.

	4.9 View Rates	5 View Rates
Min fixed rates	6.80%	8.99%*
Min fixed rates	Min fixed rates
6.80%	8.99%*
Max fixed rates	15.20%	35.49%*
Max fixed rates	Max fixed rates
15.20%	35.49%*
Term lengths	5, 10, 15, or 30 years	24 – 84 months
Term lengths	Term lengths
5, 10, 15, or 30 years	24 – 84 months
Minimum loan amount	$15,000	$5,000
Minimum loan amount	Minimum loan amount
$15,000	$5,000
Maximum loan amount	$400,000	$100,000
Maximum loan amount	Maximum loan amount
$400,000	$100,000
Credit score	640 (720+ preferred)	660
Credit score	Credit score
640 (720+ preferred)	660
Maximum DTI	50%	Not disclosed, 36% typical
Maximum DTI	Maximum DTI
50%	Not disclosed, 36% typical
	*with all discounts included

How to decide between a personal loan and a HELOC

Choosing the right option depends on your financial situation and goals. In many cases, a HELOC will be the better deal for borrowers with strong credit and significant equity, thanks to its lower interest rates and flexible draw options. But personal loans can still be a better fit depending on your comfort with risk and repayment preferences. 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 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. [Although may HELOC lenders offer fixed rates on each draw.]

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. 

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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.