Lets compare two very popular finance options in 2026, the home equity loan and personal loan and uncover the similarities and differences so you can make a wise financial decision.
Which Is Better for You, Home Equity Loan, HELOC or Personal Loan?
The trade is simple: a home equity loan is cheaper, a personal loan is safer.
A home equity loan is secured by your house, which is why lenders price it near 7.36% to 8.08% as of July 2026, allow terms up to 15 or 30 years, and will lend six figures against your equity.
A personal loan is unsecured, no collateral, no appraisal, no lien, so rates typically run in the low double digits or higher, terms are compressed to two to seven years, and most lenders cap you around $50,000.
Funding speed reverses the ranking: a personal loan can hit your account in days, while a home equity loan takes two to six weeks. And the consequences of default are not remotely equal. Miss payments on a personal loan and you face collections and a damaged credit score. Miss them on a home equity loan and you can lose your house.
Do you need money to pay for major expenses, such as medical bills, home improvements, or college tuition?
Many homeowners in 2026 are thinking about ways to pay for large-ticket expenses, and two possible options are a secured credit line, home equity loan or personal loan.
What are these loans about and which is best? Learn more in this article, then talk to one of our loan professionals if you need help or want to apply!
Is a Personal Loan the Same as a Home Equity Loan?
Home equity loans and personal loans are both fixed-rate, lump-sum financing options, but they differ in several key ways. Personal loans are unsecured, meaning your rate is determined by your credit and income. Home equity loans, on the other hand, usually offer lower rates because they are secured by your home, which serves as collateral for the loan.
What Is a Personal Loan?
A personal loan is an unsecured loan that some people get if they can’t get or don’t want a home equity loan. Personal loan funds are unsecured, so you don’t risk your house if you default. However, a personal loan often has a higher interest rate than a second mortgage or equity loan.
Personal loan funds are generally faster to qualify for because you don’t have to go through the underwriting process. If you have good credit, you could get a personal loan in the 8-10% range. But if you have lower credit scores, the rate could be much higher.
Reduced fees: Numerous personal loans waive origination fees or closing costs, saving you money upfront.
Faster approvals: Receive a prompt decision from underwriting on your personal loan application within hours of submission.
Fast access to funds: Certain unsecured loan programs disburse funds shortly after approval, ensuring quick access to cash.
What Is a Home Equity Loan?
A home equity loan or home equity line of credit, also know as HELOC are second mortgages that allow the homeowner to take out part of their equity in cash. The second mortgage can be either a fixed or variable rate loan that is paid back over many years.
Homeowners could qualify to take out up to 80% or 85% of their home’s value, including what they owe on the first mortgage. Getting a home equity loan can be a good financial decision to get the cash you need because the interest rate is lower than most unsecured loans.
Competitive mortgage rates: Enjoy interest rates significantly lower than credit card APRs and often lower than other unsecured loan options.
Debt consolidation: Lenders offer simple interest solutions to refinance credit card debt into an installment loan that offers lower fixed rates and monthly payments. Compare HELOCs for debt consolidation vs personal loans.
Money for significant expenses: From essential home renovation to funding a dream wedding, a home equity loan offers a fixed, predictable cost, simplifying budget management. With your home as collateral, these loans often provide generous borrowing limits to cover substantial expenses.
Easier credit requirements: Borrowers with credit scores below 600 may still be eligible for an equity loan if their debt to income ratio and loan to value are low enough. If you have late payments being recorded on your credit report, consider a HELOC for bad credit.
A home equity loan carries a fixed interest rate and fixed period to repay the loan. This type of second mortgage gives you a lump sum of money that you pay interest on from day one. It may be a good choice for those who need to pay for one large expense, such as medical bills or credit card debt.
A HELOC is a variable-rate second mortgage that is a line of credit like a credit card. You can take out money up to your credit limit at any time, and you’re only charged interest on the amount you have taken out.
A HELOC may have a fixed rate initially, but is variable after the first several months or year. This loan is more volatile than a fixed rate home equity loan, so it may not be for you if you want a fixed, reliable payment. A HELOC’s rate can go up or down according to market trends. Find the best HELOC interest rates now.
Interest rates on home equity loans in 2024 are often in the 7-11% range, but your rate could be higher or lower, based on your credit score. Rates are higher than three years ago, but second mortgages are still one of the lowest rate options on the market. Find out what the HELOC costs are if you are considering a line of credit.
Equity on interest taken out with an equity loan may be tax deductible if used for home renovations. Under current tax law, you cannot take a tax deduction for the interest if the money is used for another purpose.
Home equity loans generally require a credit score of at least 620, but higher scores get better rates. .
The criteria for obtaining a home equity loan are often more stringent than those for a primary mortgage. This is because the first mortgage lender’s claims take priority over other liens if the loan goes into default. Many lenders require a minimum credit score of 620, though some have higher minimums. Some lenders may want to see at least a 640 or 680 credit score. If your credit score is not strong, your lender may require a high income or a low debt-to-income ratio.
Additionally, most lenders require at least 15% to 20% home equity to approve a home equity loan. If you are a new homeowner looking to upgrade your property or if your home’s value has dropped since you purchased it, you may not have enough equity to qualify.
FAQs
Is a personal loan or a home equity loan actually cheaper?
The lower rate doesn’t always win, because term length matters more than most people realize. Borrow $25,000 on a personal loan at 12% over 5 years and you’ll pay roughly $8,400 in total interest. Borrow the same $25,000 on a home equity loan at 7.75% over 15 years and you’ll pay about $17,400 — more than double, despite the far better rate. The home equity loan wins on monthly payment; the personal loan often wins on total cost. Decide which one you’re actually optimizing for. Compare current pricing at best HELOC rates.
Which funds faster, a personal loan or a home equity loan?
The personal loan, decisively. Many online lenders approve within hours and disburse in one to seven days, because there’s no appraisal, no title search, and no lien to record. A home equity loan is a real estate transaction: it requires a property valuation, title work, underwriting, and — on your primary residence — a three-business-day right of rescission after signing before funds release. Budget two to six weeks. If your need is genuinely urgent, that gap alone may decide the question.
How much can I borrow with each?
Personal loans typically top out around $50,000, with some lenders reaching $100,000 for excellent credit. A home equity loan is limited by your equity, not an arbitrary cap: most lenders allow a combined loan-to-value of 80% to 85%. On a $500,000 home with a $250,000 mortgage, that’s roughly $150,000 to $175,000 of borrowing capacity — far beyond what any unsecured lender would extend. If you need a large sum, the home equity loan is often the only realistic path.
What if I don’t have enough equity for a home equity loan?
Then the personal loan may be your only option, and that’s a legitimate reason to choose it. Most lenders require you to retain 15% to 20% equity, which rules out recent buyers, homeowners in markets where values have slipped, and anyone who has already borrowed against the property. Rather than stretching for a second lien you don’t qualify for, compare unsecured pricing. Borrowers with weaker credit but solid equity may still have options — see bad credit home equity loans and HELOCs.
Is personal loan interest tax deductible?
No. Interest on an unsecured personal loan used for personal purposes is never deductible, regardless of how you spend the money. Home equity interest can be deductible, but only under a narrow rule made permanent by the One Big Beautiful Bill Act in July 2025: the funds must buy, build, or substantially improve the home securing the loan, subject to the $750,000 cap, and you must itemize. Using either loan to pay off credit cards produces no deduction. This is one real advantage the home equity loan holds — but only for renovations. Consult a CPA.
What happens if I default on each one?
This is the difference that should drive your decision. Default on a personal loan and you face collection calls, credit damage, and potentially a lawsuit and judgment — serious, but your home isn’t collateral. Default on a home equity loan and the lender holds a lien on your house and can foreclose, even if your first mortgage is fully current. Second-lien holders are more likely to pursue foreclosure when meaningful equity exists to recover. Never convert unsecured debt into secured debt without accepting that trade honestly.
Which is better for consolidating credit card debt?
It depends entirely on whether you can afford the payment and whether you’ll re-accumulate. With credit cards averaging 22.15% in 2026, both options beat carrying the balance. The home equity loan cuts your rate the most but puts the house at risk. The personal loan costs more monthly yet keeps the debt unsecured, and its shorter term forces you to actually finish paying it. Whichever you pick, the plan only works if you stop using the cards. See HELOC for debt consolidation for the full comparison.
The Home Equity Mart can connect you with multiple banks and lenders today if you want to get pre-qualified for a home equity loan.
Which Loan Is Best a HELOC or Personal Loan?
Before committing to a specific loan, it’s crucial to conduct some research, whether it’s for a personal loan or a home equity loan:
- Determine exactly how amount you need to borrow.
- Compile your current bills and debts.
- Assess what monthly payment meets your budget goals.
- Seek advice from a financial planner regarding your available options.
Consider the advantages of each type of loan option. Personal loans are unsecured and often come with minimal fees, rapid approvals, and immediate access to funds.
On the other hand, home equity loans are secured loans which allow lenders to offer lower interest rates, larger loan amounts, and potential tax advantages. However, it’s important to consult with a tax advisor to ascertain your eligibility for any deductions. These advantages are attainable because a home equity loan is secured by your home.
Home equity and personal loans are both viable options, depending on your goals and circumstances. An equity loan or HELOC may be a fit for a homeowner who wants to access low-interest equity to pay for important expenses, such as credit card debt or home improvements.
But taking out equity means another loan payment, and your house is at risk if you don’t pay.
A personal loan is unsecured and may have a higher rate and shorter payment term, but you don’t risk your property if you default. Still, a personal loan can be right for people with good credit because rates are in line with what second mortgages offer.
If you have questions, speak to one of our loan advisors today. We can help you get the money you need fast !
When you need to borrow money for home improvements, two options are a home equity loan and a personal loan. Both are installment loans with fixed interest rates, but their approval processes and repayment terms differ significantly.
Updated : HEM Editorial Team | June 2026 | Fact-Checked ✓