Home Equity Loan vs. Personal Loan: Which Is Better for You?

A home equity loan lets you borrow a lump sum against the equity in your home. A personal loan also lets you borrow a lump sum, but it doesn't require collateral, and most personal loans offer faster approval and funding than home equity loans. Keep reading to find out how you can decide between a home equity loan vs. personal loan and which option is right for you.

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Quick Take

Home Equity Loan Specs

• Collateral: Yes, your home

• Loan amounts: $10,000 to $500,000

• Terms: 5 to 30 years

• Annual percentage rate (APR): 5.50% to 10%

• Funding speed: 2 to 6 weeks

• Risks: Possible foreclosure

• Best for: Lower rates, large amounts, longer terms

• Common uses: Home improvements, education expenses

Personal Loan Specs

• Collateral: No

• Loan amounts: $1,000 to $100,000

• Terms: 1 to 7 years

• APR: 6.5% to 36%

• Funding speed: 1 to 4 business days

• Risks: Impacts credit and financial health

• Best for: Speed, small amounts, no collateral risk

• Commons uses: Home repairs, debt consolidation

Home Equity Loan vs. Personal Loan: Key Differences

This side-by-side comparison quickly illustrates the differences between personal and home equity loans.

How Does a Personal Loan Work?

A personal loan is a general-purpose installment loan that typically doesn't require collateral. You get your loan proceeds in a single lump sum, then make monthly payments over a set term.

Because you’re not putting up collateral, personal loans might carry higher APRs, especially if you have imperfect credit. But, on the plus side, you’re not risking an asset, like a home or car, for financing.

Here’s an overview of how personal loans work:

• Personal loans are most commonly available for 1 to 7 years, with amounts ranging from $1,000 to $100,000.

• They usually have fixed interest rates, so your payment stays the same for the whole loan term.

• Unless your lender says otherwise, you can use a personal loan however you want.

• Debt consolidation and home repairs are common uses, but quick approval and funding make personal loans a potentially good choice for any emergency expense that's too large for a credit card.

• Banks, credit unions and nonbank lenders all offer personal loans, making them easy to find.

It can help to weigh the pros and cons of a personal loan before deciding between borrowing options.

How Does a Home Equity Loan Work?

A home equity loan is a secured installment loan that lets you borrow against your home’s current value. Because the loan is backed by such a big asset, lenders are often willing to extend financing to qualified borrowers at lower APRs and higher borrowing amounts.

The big tradeoff is that, should you default, the lender could move to foreclose on your home.

Here’s an overview of how home equity loans work:

• You usually need at least 10% to 20% equity in your home to qualify.

• You can typically borrow anywhere from $10,000 to a maximum of 80% of your equity.

• Most lenders require an appraisal during underwriting to determine your home’s value, your equity, and the amount you can borrow. If you have a mortgage on your home, the home equity loan is a second mortgage.

• Loan terms typically range from 5 years to 30 years, depending on the lender and the amount you borrow.

• Your payment stays the same for the entire term because home equity loans typically have fixed interest rates.

• You can use a home equity loan for just about any purpose. Many borrowers use it as a low-cost way to finance home improvements, education costs and other major expenses.

• Most home equity loans are from banks and credit unions. You might have to shop around for one, though. Some banks have discontinued home equity installment loans in favor of home equity lines of credit (HELOCs).

If you’re planning a larger project, consider construction loans and learn how they compare to home equity financing.

Quick Example: Personal Loan vs. Home Equity Loan Costs

Say you’re looking to borrow $20,000. Based on industry standards for each loan type, you might expect the following terms and conditions.

As you can see, in this scenario, the shorter-term personal loan would cost you $253 more a month, but the longer-term home equity loan would cost you $7,710 more in total interest, even with the lower APR.

Of course, the math can vary depending on loan amount, terms and interest rates. Plus, there are other pros, cons and costs to consider. Ultimately, you’ll need to compare offers side-by-side to fully understand your best option.

When Should You Choose a Personal Loan vs. a Home Equity Loan?

Comparing different types of personal loans and home equity loans with real-world situations can help you decide which might be best for you.

• If you don’t own a home or lack sufficient equity, choose a personal loan.

• If you have equity, good credit and want the lowest possible APR, choose a home equity loan.

• If you don’t want to risk your home, choose a personal loan.

• If you need a large loan — $100,000 or more — choose a home equity loan.

• If you need a small loan — $10,000 or less — choose a personal loan.

• If your priority is a small monthly payment, choose a home equity loan.

• If you need money in days instead of weeks, choose a personal loan.

• If you’re funding tax-deductible home improvements, choose a home equity loan.

• If you plan to sell your home in the next several years, choose a personal loan.

What Are the Risks and Trade Offs?

Before committing, take a closer look at what each option involves:

Home Equity Loan

• Your home is at risk if you default.

• Long loan terms increase total interest and default risk.

• You’re reducing the home equity you’ve built.

• If property values fall, you could owe more than your home is worth.

• The approval and funding process can take longer.

• Closing costs increase your total borrowing costs.

Personal Loan

• The APRs may be much higher.

• Affordable rates generally require good credit.

• The maximum loan amounts are lower.

• Short loan terms may carry large monthly payments.

• You could face potentially high origination fees.

• Interest is not tax-deductible in any scenario.

How Do You Apply for Each Loan?

The steps to get a personal loan or home equity loan are similar, but processing is more complicated with a home equity loan.

How To Apply for a Personal Loan

1. Order a copy of your credit score and credit report. Resolve any issues that might keep you from being approved for the loan.

2. Research the best banks for personal loans, and request rate quotes from a few you like.

3. Start an application on the lender’s website. Follow the instructions for submitting your photo ID, recent pay stubs, W-2 or 1099 forms, as well as any other documents the lender asks for.

4. Watch for your approval notification. Personal loans are often approved right away.

5. Review and sign your loan documents to accept the loan.

6. Be on the lookout for your check or for the deposit to hit the account you provided. Personal loans can be funded as soon as the same day.

How To Apply for a Home Equity Loan

1. Check your credit and estimate your available equity by researching your home's current market value and subtracting your mortgage balance.

2. Compare top home equity loan providers and request rate estimates from several, including your mortgage provider, bank or preferred online lender.

3. Submit a full application with documentation, including proof of income, tax returns, mortgage statements and homeowners' insurance.

4. Schedule and complete the home appraisal. Lenders usually require one to confirm your home’s value.

5. Receive, review and sign your final loan agreement. Home equity lenders must provide you with a 3-day right of rescission. During this period, you can cancel your home equity loan without penalty.

6. Watch for your check to arrive or for the deposit to be credited to your designated account. Home equity loans can take longer to remit than personal loans — usually 2 to 6 weeks.

Final Takeaways

• Home equity loans and personal loans provide an upfront lump sum you typically repay in fixed installments.

• Personal loans are unsecured, while home equity loans require you to use your home as collateral, putting the property at risk if you default.

• Home equity loans typically offer lower APRs, longer terms and higher borrowing limits, making them best for large expenses, like major renovations.

• Personal loans offer faster funding times, lower borrowing minimums, and shorter terms, making them best for smaller-dollar, time-sensitive expenses.

• The choice between a personal loan and a home equity loan hinges on your loan size, urgency, eligibility and risk tolerance.

Key Terms To Know

• APR: The total annual cost of your loan, including fees and interest, expressed as a percentage.

• Collateral: An asset, like a home or car, you can use to secure a loan.

• DTI ratio: The percentage of your gross monthly income that goes to existing debt obligations.

• Home equity: The portion of your home that you wholly own, calculated as your home’s current value minus your outstanding mortgage balance.

• Origination fee: An upfront fee that some lenders charge to process a personal loan application.

• Right of rescission: A legally mandated 3-day window after closing on a home equity loan, when you can cancel the loan without penalty.

• Secured loan: A loan that’s backed by collateral. If you default, your lender can seize this asset.

• Unsecured loan: A loan that isn’t backed by collateral. Approval is generally contingent on your credit, income and overall financial profile.

Home Equity Loan vs. Personal Loan FAQs

If you're comparing these options, these FAQs can help you make a more informed decision:

Which one is easier to get — a home equity loan or a personal loan?

Personal loans are faster and easier to get, but if you need a large loan, a home equity loan might be easier to qualify for because it's secured by your home.

Which has lower interest rates?

Home equity loans usually have lower rates, although some personal loan rates are very competitive for the most qualified borrowers.

Is home equity loan interest tax-deductible?

Home equity loan interest might be tax-deductible if the loan is secured by your primary or second home, and you use the funds to buy, build or substantially improve this residence. A tax advisor can help you determine eligibility.

How long does funding take?

A personal loan is usually funded within 1 to 4 business days. Funding for a home equity loan usually disburses within 2 to 6 weeks, as your lender must verify your home’s ownership and value during underwriting.

Do I need an appraisal?

You generally need an appraisal for a home equity loan because your property’s current value affects how much equity you have and how much you can borrow. You don’t need an appraisal to get an unsecured personal loan.

Is a home equity loan a second mortgage?

A home equity loan is considered a second mortgage. It effectively lets you borrow against the equity you built in your home by paying off your primary mortgage. If you default on a home equity loan, your lender can foreclose the property.

Sources

• IRS. 2026. "Topic no. 505, Interest expense."

• Consumer Financial Protection Bureau. "Using home equity to meet financial needs."

• Federal Trade Commission. 2025. "Home Equity Loans and Home Equity Lines of Credit."

Daria Uhlig contributed to the reporting for this article.

Photo Credit: Izabela Habur / Getty Images