Is a Personal Loan Better Than a HELOC?
When it becomes time to borrow from a financial institution, it can be difficult to decide what type of loan is best. There is no "best" kind of loan. It is important to consider many factors when choosing the type of loan for which to apply.
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Lines of Credit Vs. Installment Loans
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A HELOC, or home equity line of credit, is revolving debt, meaning borrowers can access money, repay, then borrow again, giving access to emergency funds. A personal installment loan has a fixed term with no option for borrowing again with the same loan, making it a good vehicle for paying off debt permanently.
Secured Vs. Unsecured Loans
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A HELOC is secured with your place of residence, which can pose a risk to you if you default on the loan. A personal loan requires no collateral but can be more difficult to obtain for people with less-than-perfect credit or limited income.
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Interest Rates
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Typically, HELOCs have a lower rate of interest than personal loans.
Payments
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Because lines of credit can be borrowed from repeatedly, borrowers are billed for a minimum payment every month, which can lead to varying payment amounts. Personal installment loans typically have a fixed payment throughout the life of the loan.
Flexibility
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With a HELOC, borrowers can draw from the line when they are ready to access the funds, meaning they can get a line in place and not be charged for interest until they have a need for the funds. With a personal loan, funds are completely dispersed at the time of loan closing, and interest is assessed on the balance immediately.
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