Personal Loan vs. HELOC: What’s Best for You?

Whether you are looking to consolidate debt, start a home improvement project or need money for an emergency, figuring out your next steps could seem overwhelming. You may consider applying for a personal loan or a home equity line of credit (HELOC), a revolving line of credit that’s secured by your home. Let’s take a closer look at these two options to see which one may work best for your needs.

What is a personal loan?

A personal loan is a type of installment loan that provides a lump sum of money from a lender, bank or credit union.

A personal loan may be secured or unsecured. A secured loan is backed by collateral, which is something of value you use to back the loan, like a vehicle. A secured loan may get you access to a higher borrowing amount, lower monthly payments or lower interest rates. However, if you can’t pay back your secured loan, you could lose your collateral.

An unsecured loan, on the other hand, doesn't need any collateral. Many lenders approve an unsecured loan based on your credit history, income and other factors that determine your creditworthiness.

How does a personal loan work?

A personal loan is considered an installment loan, or a set amount of money that you can borrow and then pay back with interest, or the cost of borrowing, usually through fixed payments and a set payoff date.

When you take out a personal loan, you pay the loan back in monthly payments. Your monthly payment includes a portion of both the principal (or the original amount borrowed) and interest. Most personal loan repayment terms range from 2 to 5 years. Typically, personal loans have predictable monthly payments and a fixed interest rate, meaning your interest rate remains the same, even if the market changes.

How do I apply for a personal loan?

Prequalifying for a personal loan gives you an estimate of how much you can borrow without formally applying for a loan. At OneMain, prequalifying takes just minutes to complete, with no impact on your credit score.

Once you’re ready to start the application process, you’ll need to provide some documents. These will vary by lender but may include:

• Proof of identity, such as a driver’s license, state-issued ID card or passport
• Proof of residence, such as a driver’s license with current address, utility bill or signed lease
• Proof of income, such as payroll slips or other tax documents

When you apply for a secured loan, you’ll also need to provide documents that prove you own collateral. If approved, you’ll receive a loan offer with loan terms, including the interest rate, repayment schedule and information on any fees. If everything looks good, you can accept the loan, and your funds can be deposited into your bank account. At OneMain, your funds can be deposited into your bank account in as little as one hour after loan closing, but time frames may vary from different lenders.

What is a home equity line of credit (HELOC)?

A HELOC is a revolving line of credit secured by the equity in your home. Equity is the difference between what you owe on your mortgage and the current market value of your home. For example, if your home's current value is $250,000 and you owe $150,000 on your mortgage, your home has $100,000 of equity.

To qualify for a HELOC, you need to have available equity in your home. Your lender will use an appraisal to help determine your borrowing amount. Since your home acts as collateral for a HELOC, there is a risk of losing your home if you’re unable to repay the loan. And, unlike personal loans, HELOCs typically have variable interest rates. As a result, your payment may go up or down from month to month.¹

How does a HELOC work?

A HELOC is typically broken into a draw period and a repayment period. During the draw period (often 10-15 years), you may borrow money as needed up to your credit limit and may only need to make interest-only payments. During the repayment period (typically 10-20 years), you may no longer borrow and must repay both the principal and interest.²

How do I apply for a HELOC?

Applying for a HELOC typically starts with comparing lenders, fees, interest rates and requirements. Once you choose a lender, you’ll submit an application and provide documents to verify your income, debts and other financial information. The lender will also review your credit and determine how much equity you have in your home.

As part of the process, your lender will usually require a home appraisal to confirm your home’s current market value. The lender will use this value, along with the amount you still owe on your mortgage and other factors, to determine whether you qualify and how much you may be able to borrow. If approved, you’ll review the HELOC’s terms before closing. Because HELOCs require additional steps such as verifying your home’s value, the process can take longer than applying for a personal loan.

Key differences between a personal loan and a HELOC

Feature	Personal Loan	HELOC
Typical uses	Emergency expenses, debt consolidation, moving costs, car repairs, major life events, vacations, home improvements or emergency expenses	Large home renovations, consolidating high-interest debt, education costs or emergency expenses
Borrowing amounts	Varies by lender but can be up to $30,000	Up to 85% of your home’s value3
Collateral	May be secured (typically by a vehicle) or unsecured (no collateral required)	Secured by your home
Interest rate type	Usually fixed rate — your rate stays the same throughout the loan term	Variable rate — your rate may go up or down based on market conditions
Funding speed	Can be funded quickly, from 1-5 business days. At OneMain, loans can be funded as fast as one hour after loan closing.	Can take up to six weeks due to home appraisal and underwriting4 Some lenders may offer faster funding.
Access to funds	Receive funds once and repay on a fixed schedule	Borrow, repay and borrow again up to the credit line during the draw period
Repayment structure	Fixed monthly payments over a set term (typically 2 to 5 years)	Interest-only payments during draw period, then principal and interest during repayment period

Is a personal loan or a HELOC right for you?

To find the right fit, consider what repayment timeline you’d prefer, whether you’re comfortable using your home as collateral and how much money you need.

Here are some scenarios to help you decide:

You might consider a personal loan if:

• You need money fast. Personal loans could be approved and funded quickly, especially if you choose to receive funds via your debit card or direct deposit.
• You want predictable payments. Fixed monthly payments make it easier to budget during repayment and understand your total cost — even if interest rates change.
• You don't want to risk your home. Unsecured personal loans don't put your home on the line, and even secured personal loans typically use a vehicle.
• You know exactly how much you need. A lump sum payment works well when you have a specific expense to cover, like consolidating debt or paying for a one-time repair.
• You don't own a home or have enough home equity. With a personal loan, the amount you’re approved for is based on your credit history and the value of your collateral, like your vehicle, instead of requiring you to own a home.

You might consider a HELOC if:

• You own a home and have significant home equity. HELOC lenders typically require that your home has equity of at least 15% to 20% at the time of appraisal.⁵
• You have an ongoing project with uncertain costs. A revolving line of credit with a longer draw period may be helpful if you’re unsure how much you’ll need or expect expenses to come up over time.
• You're comfortable with variable rates. If you understand that your payment could increase and you have room in your budget for potential changes, a HELOC might work for you.
• You qualify for a lower rate. HELOCs may offer lower interest rates than personal loans, particularly for borrowers with strong credit and substantial home equity — though this isn't guaranteed.⁶
• You can wait for funding. From applying to receiving approval, getting a HELOC may take 2 to 6 weeks due to home appraisals and additional underwriting requirements.⁷

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Find the right fit for your budget

Whether you choose a personal loan or a HELOC, it's important to borrow responsibly. Before you commit to any loan, do your research to find the one that best works for you. Spending the time to understand your options now may help you make a decision that supports your financial goals in the future.

Sources

1, 2. https://consumer.ftc.gov/articles/home-equity-loans-and-home-equity-lines-credit
3. https://rocketmortgage.com/learn/how-much-heloc-can-i-get
4. https://www.experian.com/blogs/ask-experian/how-long-to-get-heloc/
5. https://www.investopedia.com/mortgage/heloc/home-equity-vs-heloc
6. https://www.experian.com/blogs/ask-experian/heloc-vs-personal-loan-which-is-better/
7. https://www.bankrate.com/home-equity/home-equity-loan-approval-process/#tips