Home Equity Loan Vs. Personal Loan: Questions to Ask to Help You Decide
What are your plans?
There are many reasons to take out a loan, but knowing why you need the money can help you decide which loan is right for you. If you plan to complete home renovations, you may be able to deduct the interest on the loan with a home equity loan.
But if you don’t own a home or want to consolidate debt, a personal loan may be better suited to your needs. The timeliness of your plans could also affect which loan is best for you, which we’ll discuss later.
What is your credit situation?
If you’re not sure what your credit report looks like, be sure to check before deciding which loan to choose. If you have good to excellent credit, you can qualify for a personal loan and take advantage of their lower fees. However, if you have a bad credit score, you may not be able to get a personal loan.
If you own a home and have some equity, a home equity loan may be the best choice for you. Keep in mind that you may not qualify for better interest rates if you apply for a home equity loan and your credit is weak.
How urgently do you need money?
If the time it takes to get a loan is a big factor, the big winner is the personal loan. The process for a home equity loan includes determining the value of your home, which adds a few extra steps that a personal loan does not require. A home equity loan requires an application, underwriting and possibly an appraisal before the loan is granted.
So if you’re not in a rush and want to do some renovations in the future, a home equity loan is always a great option. However, if you need money for an emergency, a personal loan is a better option. A personal loan can usually take a few days or a week for the borrower to receive the money, while a home equity loan can take up to a month.