HELOC vs Personal Loan: How Do They Compare?

Both HELOCs and personal loans can be useful financial tools, but they have distinct features that make them suitable for different situations.

Here’s a comparison between HELOCs and personal loans:

HELOCs

A HELOC is a line of credit that allows you to borrow money based on the equity you’ve built in your home. Unlike a personal loan, which provides a lump sum, a HELOC lets you withdraw money as needed throughout the draw period, paying interest only on the amount used.

Many HELOCs have an initial draw period (e.g., 10 or 15 years), during which you can borrow against your credit line up to a predetermined amount. After the draw period ends, you enter a repayment period where you’ll pay back the loan principal and interest over a set number of years (e.g., 10 to 20 years). HELOC interest rates are variable and tied to the prime rate, which means your monthly payments can fluctuate.

Because a HELOC is a secured loan, meaning it’s backed by your home, the interest rates are often lower than those for unsecured loans. However, this also puts your home at risk if you cannot repay the loan.

Some common uses for a HELOC include:

• Ongoing, irregular, or seasonal expenses
• Home renovations that unfold over several months
• An emergency or education fund
• Buying a property

Personal loans

A personal loan is an installment loan that provides a lump sum of money upfront, usually with fixed personal loan interest rates and predictable loan repayment terms.

Most personal loans are unsecured, meaning they are not backed by a specific asset like your home. Since the interest rates are also fixed, they’ll stay the same throughout the life of the loan.

Getting a personal loan is usually faster than a HELOC because it does not require a home appraisal. Getting a personal loan involves an assessment of your credit history, income, and debt-to-income ratio.

Personal loans can be used for a variety of purposes, such as:

• Consolidating credit card debt and other higher-interest debt
• Paying for a single large purchase or major life event
• Covering medical expenses or emergencies

HELOCs are a common financing option for home renovations—the interest is tax-deductible if you use the funds for a home improvement project that substantially improves the residence. However, the approval process can take several weeks from application to funding. And if you sell your home before the loan is repaid, the remaining balance will be paid using the proceeds from the sale.

Here are a few scenarios where it may be better to opt for a HELOC over a personal loan:

• You need access to funds over time for ongoing projects where the costs might vary
• You anticipate needing to borrow multiple times
• You’re comfortable with a variable interest rate and the risk of using your home as collateral
• You only want to pay interest on what you borrow each time rather than the full amount available

When to avoid a HELOC

A HELOC can be a useful tool, but it’s not always the right fit. Here are situations where a HELOC may create more risk or complexity than it’s worth:

• You want predictable payments: HELOCs typically have variable interest rates, which means your monthly payment can change over time. If stability matters, this uncertainty can strain your budget.
• You’re concerned about using your home as collateral: Because a HELOC is secured by your home, missed payments could put your property at risk.
• You need funds quickly: The HELOC approval process often takes several weeks and usually requires a home appraisal.
• You don’t plan to use the funds for home improvements: Interest is only potentially tax-deductible when the funds are used to buy, build, or substantially improve the home.
• You’re near a major life change: Selling your home or relocating before the balance is repaid can complicate repayment and limit flexibility.

A personal loan is a popular financing option because it allows you to tailor your funding needs to your budget, without borrowing against your home to secure it.

A personal loan may be more affordable on a monthly basis because you lock in an interest rate for the entire loan term. Once you select your loan amount and repayment terms, the monthly payment will stay the same. However, a strong credit profile and income are key to qualifying and getting a lower rate.

Here are a few situations where a personal loan may make more sense:

• You need a specific amount of money for a one-time expense, and you don’t have equity, or want to use it, to secure the funds
• You want to lock in a fixed interest rate and prefer a predictable repayment schedule with a fixed payment amount
• You want a debt consolidation loan to consolidate high-interest debt, such as credit cards, medical debt, or other personal loans
• You need a faster loan decision and funding that takes a few days rather than weeks

When to avoid a personal loan

Personal loans offer speed and predictability, but they’re not always the best option. You may want to look beyond a personal loan if:

• You need ongoing access to funds: Personal loans provide a one-time lump sum. If your expenses will occur in phases, a revolving line of credit may be more practical.
• You qualify for significantly lower secured rates: In some cases, borrowers with substantial home equity may find lower rates through secured options, depending on market conditions.
• Your credit profile needs improvement: Personal loans rely heavily on credit and income strength. A weaker profile may lead to higher rates or less favorable terms.
• You’re tempted to overborrow: Because funds are disbursed all at once, borrowing more than needed can increase interest costs over time.

The financing choice you make today can shape your financial flexibility for years to come. A large personal loan with BHG Financial gives you access to large, unsecured funding with fixed rates and predictable payments.

While many lenders cap personal loans at $50,000 and HELOCs are limited by available home equity, BHG offers access to some of the largest unsecured personal loans available—up to $250,000¹—without requiring you to use your home as collateral. With extended loan terms of two to 10 years^1,3, you can structure payments that stay manageable month after month.

Here are a few additional advantages of choosing to lend with BHG Financial:

1. Personalized support: You’ll work one-on-one with an experienced loan specialist who helps tailor loan options to your financial objectives.
2. Streamlined application process: Our application process is efficient and fast—Apply online, prequalify without impacting your credit score⁴ and you may receive funding in as few as five days² once approved. 
3. Track record of success: BHG brings more than 25 years of lending experience and a long history of helping six-figure earners secure smart, reliable financing.

When it comes to financing, confidence matters. Nine out of 10 funded customers say they received exactly—or more than—the amount they needed from BHG, and customers rate BHG Financial 25% higher than other lenders.

Explore what thousands of professionals already know—and see what your personalized offer could look like.

Is it better to get a home equity line of credit or personal loan?

Neither option is universally better—it depends on your goals. A HELOC may work well for homeowners with significant equity who need financing for ongoing, home‑related expenses, while a personal loan is often a better fit for one‑time costs, debt consolidation, and borrowers who prefer fixed payments and faster funding.

What are the disadvantages of a HELOC?

HELOCs typically have variable interest rates, longer approval timelines, and require your home as collateral. Changes in interest rates can increase payments over time, and missed payments may put your home at risk.

Is interest on a HELOC tax-deductible?

The interest paid on a HELOC may be tax-deductible if you meet certain criteria. According to the IRS, for interest to be deductible, the borrowed funds must be used to “buy, build, or substantially improve the residence.” It’s important to consult a tax advisor for guidance tailored to your specific situation.

What are the risks of using my home as collateral?

The primary risk of borrowing against your home equity and using it as collateral to secure a loan is the potential for foreclosure. If you are unable to make your HELOC payments, the lender has the right to take possession of your home to recover the outstanding debt.

How quickly can I get funds from a HELOC or personal loan?

The time it takes to receive funds can vary for both HELOCs and personal loans, depending on the lender. For a personal loan, you can typically receive a lump sum within a few business days once approved. The loan approval process for a HELOC can take longer, up to several weeks, as it often involves a home appraisal. Once the HELOC is approved, you can withdraw funds as needed during the draw period.