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Personal Loans and Home Equity Loans - Which Is Better?

March 6, 2019 | By Louis Tully


Loans can be a very useful way to cover big purchases, but with so many different types to choose from, it can also be a brooding pain in the neck to find the “right” one. In fact, there seems to be a loan for just about everything from cars to tuitions, each one specifically tailored to fit the bill. But not all loans are created equal and even require a little bit of research before signing the dotted the line. Perhaps the most popular of these that are worth discussing are personal loans and home equity loans. If you’re gearing up to make a big purchase, you’ll want a pro/con breakdown of each in order to make the best decision. So, let’s do just that!

What’s a Personal Loan?

Personal loans are pretty straight-forward and aren’t necessarily squeezed into any specific type of financial need. Personal loans can cover a variety of hefty expenses including, but not limited to:

  • Home/auto repairs
  • Replace an old appliance
  • Pay off high-interest credit cards
  • Take the stress out of moving
  • Settle delinquent accounts (ex. medical bills)
  • Buy a car or a boat.

Since these loans are unsecured, they come with higher rates than secured loans (like an auto or a mortgage loan), but the rates are still lower than most credit cards. For this reason, a personal loan is great if you’re trying to get your credit card debt under control, but not so great for buying a car. Like mostly all loans, personal loans come with fixed payment terms and consequences for not meeting those terms. With that said, you want to make sure you’re only borrowing what you need and not overstepping the reason for taking out the loan in the first place.


Why Get a Personal Loan?

Reasons you should consider a personal loan:

    • If you have a strong credit history and are confident you can be approved for the find you need
    • If you are not a homeowner and have no equity to pull cash from
    • If you are a homeowner but don’t have enough equity invested to borrow the money you need
    • If you are trying to consolidate credit card debt and pay lower interest on your credit card balances

The Advantages of Taking Out a Personal Loan

  • Get approved fast: As loan approval processes go, the personal loan process is one of the quickest in the game. Others (like home equity loans) can take up to a month to get the ball rolling.
  • Less cash means less paperwork: Personal loans don’t require nearly as much paperwork as home equity loans. Plus, if you’re only looking to borrow around $10,000 to $15,000, a personal loan fits like a tailored t-shirt. Also, it should be noted that many lenders will not offer a home equity loan for smaller amounts. In fact, many lenders start home equity loans at $35,000.
  • No assets at risk: Arguably the best thing about taking out a personal loan is the fact that none of your assets are at risk. Auto title loans? Your car’s at risk. Home equity loans? Your home’s at risk. But with personal loans? Nothing. Well, except maybe your credit. But that’s to be expected. At most, defaulting on your personal loan will put a crack in your score, but it’s nothing that can’t be patched up once things get better.

What Are Home Equity Loans?

First, what is equity? Equity is the value you have in an asset like your home. This value can be found in the difference of your home’s current market value and how much is still owed on the home itself. For example, if your home is currently valued at $250,000 and the balance of your mortgage loan is $100,000, then you technically have $150,000 in home equity. A home equity loan allows you to borrow back this amount of money since it’s no longer attached to your mortgage. Makes sense? Good!

Similar to personal loans, home equity loans are delivered to the borrower as one lump sum and then paid back slowly over time with interest. Since these types of loans are based on your home’s value, they are considered a second mortgage, and like a mortgage, they take quite a bit of time to set up. In fact, most home equity loans can take months to process.


Why Get a Home Equity Loan?

Reasons you should consider a home equity loan:

    • Home equity loans are secured loans and so their interest rates are much lower.
    • The amount of money that you can borrow is generally much greater than a personal loan.
    • Home equity loan repayment terms are flexible ranging from 5 to 30 years.

The Advantages of Taking Out a Home Equity Loan

  • Affordable rates: Since home equity loans are secured, their rates are typically lower than unsecured loans like personal loans. Low interest means more money saved. Depending on how much you need to borrow, you could save thousands by opting for a home equity loan.
  • Flexible repayment terms: Home equity loans come with pretty flexible terms; much more so than personal loans. While personal loans cap off at five or six years, home equity loans can come with repayment terms as long as 30 years.
  • Tax-deductible: If you’re planning to use your home equity loan to make improvements to your home (which is the very thing that’s securing the loan in the first place), then the interest you’re paying on that loan could be tax deductible. Visit the IRS website for more information.

Other Ways to Borrow

If your credit isn’t anything to write home about and you have no home equity to speak of, there are still other lending options available to you. RPM Lenders offers loan products including auto title loans, payday loans, and signature installment loans, with a lightning-fast approval process and minimal requirements needed. If fast cash is what you need, look no further than RPM Lenders. For more information, feel free to contact a lender near you today!