HELOC vs Personal Loan Comparison
Compare a Home Equity Line of Credit (HELOC) with a personal loan side by side to find the best financing option for your home project.
Available Home Equity
$90,000
You have enough equity to qualify for a $30,000 HELOC.
Side-by-Side Comparison
| HELOC ★ | Personal Loan | |
|---|---|---|
| Interest Rate | 8.50% | 11.00% |
| Monthly Payment | $372 | $413 |
| Total Interest Paid | $14,635 | $19,590 |
| Total Cost | $44,635 | $49,590 |
| Tax Deduction Estimate* | −$3,512 | N/A |
| Effective Cost | $41,122 | $49,590 |
*Tax deduction assumes 24% marginal rate and HELOC used for home improvement (required for deductibility).
HELOC is the better choice
A HELOC saves you $8,468 over the life of the loan (including the estimated tax benefit). You’ll also enjoy a lower monthly payment of $372 vs $413.
HELOC
Pros
- ✓Lower interest rates (secured by home)
- ✓Interest may be tax-deductible
- ✓Flexible draw period — borrow as needed
- ✓Longer repayment terms available
Cons
- ✗Your home is collateral (risk of foreclosure)
- ✗Variable rates can increase over time
- ✗Closing costs and appraisal fees
- ✗Requires sufficient home equity
Personal Loan
Pros
- ✓No collateral required (unsecured)
- ✓Fixed rate — predictable payments
- ✓Fast approval and funding (days, not weeks)
- ✓No appraisal or closing costs
Cons
- ✗Higher interest rates (unsecured)
- ✗Interest is not tax-deductible
- ✗Lower borrowing limits (typically $50K max)
- ✗Shorter repayment terms
Which Is Right for You?
- →Choose a HELOC if you have at least 15% equity, want the lowest rate, plan to use the funds for home improvement (for tax benefits), and are comfortable with variable rates.
- →Choose a personal loan if you want fast funding, prefer fixed payments, need less than $50,000, or don’t want to risk your home as collateral.
- →Consider both if your project is large: use a HELOC for the main amount and a personal loan for quick extras or unexpected costs.
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Frequently Asked Questions
What is a HELOC and how does it work?
A Home Equity Line of Credit (HELOC) lets you borrow against the equity in your home. It works like a credit card with a draw period (usually 5-10 years) where you can borrow and repay, followed by a repayment period. Interest rates are typically variable and tied to the prime rate.
Is HELOC interest still tax-deductible?
Yes, but only if the funds are used to “buy, build, or substantially improve” your home. Under the Tax Cuts and Jobs Act (2017), you can deduct interest on up to $750,000 of qualified home loans. Using HELOC funds for other purposes (debt consolidation, vacation, etc.) makes the interest non-deductible.
How much home equity do I need for a HELOC?
Most lenders require you to maintain at least 15-20% equity after the HELOC. This calculator uses 85% combined loan-to-value (CLTV), which is standard. For example, if your home is worth $400,000, your mortgage balance plus HELOC cannot exceed $340,000.
Can I get a personal loan with bad credit?
Yes, but expect higher interest rates (15-20%+) and lower borrowing limits. Some online lenders specialize in fair-to-poor credit personal loans. If your credit score is below 650, consider improving your score first or exploring a HELOC if you have sufficient home equity.