Compare personal loans vs. home equity loans: Which has better terms?

Compare personal loans vs. home equity loans

Two methods for borrowers to choose. What are the differences?

If you’re a homeowner and need to borrow money for a renovation or other large expense, you may be considering getting a loan. Personal loans and home equity loans vary in a few ways. Read this guide to learn more about how they differ and how you can compare your options to make the best choice for your financial situation.

Even Financial Personal Loans

Even Financial Personal Loans

Quickly get matched to the best personal loan offer from top online lenders.

  • Minimum Credit Score Needed: 580
  • APRs as low as: 4.99%
  • Minimum Loan Amount: $1,000
  • Maximum Loan Amount: $100,000
  • Simple online application process
  • Free loan matching service

    home-loan-imageSo, what is a home equity loan?

    Home equity loans let you capitalize on the equity you have in your existing home. They enable you to utilize the capital gains of your house without needing to sell it. Your home equity is essentially the current value of your property minus the mortgage you owe.

    For instance, consider that you own a house with a current market value of $500,000 of which you owe $150,000. By using the formula given above you will arrive at a figure of $350,000. This is the amount of equity you have in your home.

    One thing you’ll need to remember is the fact you will not be able to use all the available equity you have in the property. Lenders usually offer a large percentage of the value of the property as a home equity loan.

    How home equity loans work

    What you need to know about personal loans

    There are a number of different types of personal loans, such as car loans for purchasing vehicles, unsecured loans for a wedding, and so on. Here are a few points about different personal loans you can take out:

    • Fixed rate personal loans have interest rates that don’t change throughout the loan term.
    • Variable rate personal loans usually offer lower interest rates than their fixed counterparts. There is, of course, the catch that these rates could rise in the future.
    • Unsecured personal loans give you access to funds even if you don’t have any assets to guarantee the debt.
    • Secured personal loans require you to list a valuable asset as collateral as a guarantee.

    Compare your personal loan options

    Rates last updated February 23rd, 2018

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    Name Product Product Description Min. Credit Score Max. Loan Amount APR
    Even Financial Personal Loans
    Get connected to competitive loan offers instantly from top online consumer lenders.
    580
    $100,000
    From 4.99% (fixed)
    LendingClub Personal Loan
    A peer-to-peer lender offering fair rates based on your credit score.
    660
    $40,000
    From 5.99% (fixed)
    CompareFirst Personal Loans
    An easy-to-use loan connection service geared toward introducing first-time borrowers to affordable personal loans.
    580
    $100,000
    From 2.99% (fixed)
    Upgrade Personal Loans*
    620
    $50,000
    From 5.96% (fixed)
    Laurel Road Personal Loans
    Get a personal loan with no application or origination fees and a rate discount for autopay.
    680
    $45,000
    From 5.5% (fixed)
    FreedomPlus Personal Loans
    Consolidate debt and more with these low-interest loans. Cosigners welcome.
    640
    $35,000
    From 4.99% (fixed)
    Best Egg Personal Loans
    640
    $35,000
    From 5.99% (fixed)
    Prosper
    Borrow only what you need for debt consolidation, home improvements and more — with APRs based on overall creditworthiness.
    640
    $35,000
    From 5.99% (fixed)
    LendingPoint Personal Loans
    Get a personal loan with reasonable rates even if you have a fair credit score in the 600s.
    600
    $25,000
    From 15.49% (fixed)
    NetCredit Personal Loan
    Check eligibility in minutes and get a personalized quote without affecting your credit score.
    550
    $10,000
    From 34% (fixed)

    Compare up to 4 providers

    Main differences between personal loans and home equity loans

    Personal loanHome equity loan
    Collateral requiredNone, if unsecuredYour home
    Interest rateGenerally 2.19%-36.00%Generally 3.74%-7.50%
    Repayment periodUsually 1-7 yearsUsually 20-30 years
    Maximum loan amountCan be up to $100,000Typically up to 80% of your home value

    Which is better for you — a personal loan or home equity loan?

    Both home equity loans and personal loans offer specific benefits. In particular, the former is useful when you have aggregated equity in your house, while the latter is useful especially if you don’t have any assets to guarantee the loan.

    Home equity loans can also offer considerably lower interest rates than personal loans. This means that your monthly payment for any additional amount you withdraw on the home loan can be lower than if you took out a personal loan.home-equity-vs-pls

    Keep in mind, however, that this interest is spread over a much longer term – 25 or 30 years compared to a common maximum of seven years for a personal loan. Because of this, you may end up paying more in the long run with a home equity loan.

    For both personal loans and drawing on home equity, you may need to pay associated fees depending on the requirements of the lender. If you stay with your current mortgage lender, you may be able to avoid refinancing fees depending on the flexibility of your loan, but again, it depends on the lender and on the loan in question. Refinancing with a separate lender almost always carries additional fees and charges, so this will need to be taken into account.

    Monthly payment vs. repayment period

    family need cashConsider that you’re five years into your 30-year mortgage and you need a loan of $20,000. The interest rate on a secured personal loan is 8.9%, while your home loan offers 6.39%. To accommodate the additional debt, your monthly payments on your mortgage will increase by about $150, while you’ll need to pay $321 each month for seven years if you take out a personal loan. At this stage, the home equity loan seems worthwhile.

    But over the life of your mortgage, you’ll end up paying a more interest on the home equity loan than on the personal loan because the repayment period is much longer and the interest rate is only a couple of percentages less.

    In this scenario, even at a higher interest rate, the personal loan will be cheaper over the term of seven years as opposed to a home equity loan that stretches for the next 20-30 years at a lower interest rate.

    One idea to make the home equity loan less expensive is to repay it at a faster rate than your existing monthly mortgage payments.

    Things to consider when comparing personal loans and home equity loans

    It’s worth noting that the longer you carry your debt, the more you pay in interest. That’s why choosing a loan with the shortest repayment term you can afford usually saves you money in the long run.

    Be mindful that just because you have home equity, borrowing against it too frequently could be costly. Home equity loans are a viable option to consider if you’re a homeowner. But carefully examine the terms to see if a personal loan with a shorter repayment period might work for you.

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    US Personal Loans Offers

    Important Information*
    Even Financial Personal Loans

    Get connected to competitive loan offers instantly from top online consumer lenders.

    Prosper

    Borrow only what you need for debt consolidation, home improvements and more — with APRs based on overall creditworthiness.

    LendingClub Personal Loan

    A peer-to-peer lender offering fair rates based on your credit score.

    SoFi Personal Loan Fixed Rate (with Autopay)

    Borrow up to $100,000 with a competitive APR and no fees.

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