| In this article, we'll cover the benefits and | | | | * Pro: You only pay for what you borrow and they're |
| disadvantages of home equity loans, home equity lines | | | | often easier to qualify for and faster to get than home |
| of credit (HELOCs) and personal loans. Whether | | | | equity loans. |
| you're looking for funds to finance a major expense or | | | | * Con: The interest rate is adjustable and often higher |
| simply pay down consumer debt, this article can help | | | | than a home equity loan. When shopping for a home |
| you decide what type of financing is best for you. | | | | equity line of credit, look for a low permanent rate. |
| Home Equity Loan | | | | Personal Loan |
| * Best for: Major, unexpected expenses or large | | | | * Best for: Small single expenses like a new car or |
| investments. | | | | small business investment. |
| * Not for: Ongoing or smaller expenses. | | | | * Not for: Ongoing living costs, major projects like |
| How it works: A home equity loan is like a mortgage - | | | | home renovations. |
| the borrower is given a lump sum of money up front | | | | How it works: A personal loan is a loan given to you |
| and begins paying interest and principal payments right | | | | by the bank and often secured by the piece of |
| away. The amount of the loan is based on how much | | | | equipment (e.g. a car) or property (e.g. business) that |
| equity you've acquired in your home after appreciation | | | | you're using the loan to purchase. Typically, personal |
| and mortgage payments. | | | | loans are smaller and can often be obtained in the |
| * Pro: Home equity loans typically offer a lower, fixed | | | | form of a line of credit. |
| interest rate than HELOCs and personal loans. | | | | * Pro: Simple application process without sacrificing |
| * Con: Borrowers have to pay interest on the full | | | | home equity. |
| balance right away. | | | | * Con: Without the security of home equity, the interest |
| Home Equity Line of Credit (HELOC) | | | | rates on a personal loan are often higher. |
| * Best for: Ongoing expenses like major renovations, | | | | In short, whether you get a home equity loan, a |
| college tuition or having a baby. | | | | HELOC or a personal loan will depend on why you |
| * Not for: single, major expenses. | | | | need to borrow the funds, the kind of interest rates |
| How it works: A home equity line of credit is secured | | | | you can afford and your own current financial situation. |
| by the equity in your home, and you can draw on it like | | | | Remember, always shop around for the lowest |
| a credit card or savings account. Typically, the rate is | | | | interest rate! Doing so can save you hundreds - if not |
| adjustable and you'll make interest payments on what | | | | thousands - of dollars over the life of the loan. |
| you borrow until the term of the line of credit is over. | | | | |