HELOC vs Personal Loan: Complete Comparison

You need money. You've narrowed it down to two options: tap your home equity with a HELOC, or get an unsecured personal loan. Both can hand you $30,000 next week. Both have pros and cons that could cost or save you thousands.

This guide compares both options across every dimension that matters: cost, risk, flexibility, qualification, and real-world scenarios where each wins.

The Core Difference: Collateral

HELOC (Home Equity Line of Credit): Secured by your home. Miss payments, lose your house. Because the lender has collateral, they offer lower rates.

Personal Loan: Unsecured. No collateral. Miss payments, your credit tanks and you might get sued, but you won't lose your home. Higher risk for the lender means higher rates for you.

This fundamental difference cascades into everything else.

Interest Rates: The Spread Is Significant

2026 typical rates:

HELOCs: 8.5-11% APR for qualified borrowers

• Variable rates tied to Prime Rate
• Better credit scores get better rates
• Secured by home = lower risk for lender

Personal Loans: 11-28% APR depending on credit

• Fixed rates for the loan term
• Credit score heavily impacts rate
• Unsecured = higher risk = higher rates

The gap: With excellent credit (740+), expect HELOCs around 8.5-9.5% vs personal loans at 11-15%. That's 2-6 percentage points.

With fair credit (640-680), HELOCs might be 10-11% vs personal loans at 18-24%. Now it's 7-14 percentage points.

Real Cost Example

Borrowing $30,000 paid back over 5 years:

HELOC at 9% APR (interest-only for 2 years, then amortized):

• Interest-only period: $225/month
• Repayment period: ~$622/month
• Total interest paid: ~$8,100

Personal loan at 15% APR:

• Fixed payment: $714/month
• Total interest paid: ~$12,840

Difference: $4,740 in interest savings with the HELOC.

Personal loan at 24% APR (fair credit):

• Fixed payment: $847/month
• Total interest paid: ~$20,820

Difference: $12,720 in interest savings with the HELOC.

The rate gap translates directly into thousands of dollars.

Loan Amounts: How Much Can You Borrow?

HELOCs:

• Typically 80-90% of home value minus mortgage
• $50,000-500,000+ depending on home equity
• Example: $400k home, $250k mortgage = ~$70k available at 80% CLTV

Personal Loans:

• Typically $1,000-$100,000
• Most lenders cap at $50,000-75,000
• Based on income and credit, not assets

Winner for large amounts: HELOC. Need $100,000? Personal loans may not even offer that. HELOCs can easily go to $200,000+ if you have the equity.

Winner for small amounts: Personal loan. Need $5,000? A HELOC might have minimums of $10,000-25,000 and isn't worth the hassle.

Flexibility: Draw vs. Lump Sum

HELOCs:

• Revolving credit line
• Draw what you need, when you need it
• Pay back, draw again (during draw period)
• Only pay interest on what you use
• 10-year draw period is standard

Example: You have a $50,000 HELOC. You draw $15,000 in month 1 for a roof repair. Month 6, you draw $8,000 for medical bills. You're only paying interest on the outstanding balance.

Personal Loans:

• Lump sum upfront
• You get all $30,000 at closing
• Start paying interest on day one
• Can't draw more without applying for a new loan

Winner: HELOC for flexibility. If you have ongoing or uncertain expenses (multi-phase renovation, medical treatments, college tuition over several years), HELOCs are unmatched.

Personal loans work for one-time, specific needs: pay off a credit card, buy a car, fund a wedding.

Repayment Structure

HELOCs:

• Draw period (usually 10 years): Interest-only payments, draw as needed
• Repayment period (10-20 years): Principal + interest, no more draws
• Variable rates mean payments fluctuate
• Can refinance or pay off early (check for prepayment penalties)

Payment shock risk: When you enter repayment, payments can jump significantly. A $40,000 balance at 9% goes from $300/month to $507/month.

Personal Loans:

• Fixed monthly payment
• Fixed term (1-7 years, typically 3-5)
• Fully amortized
• Payment never changes
• Loan is paid off at term end

Winner: Depends on your preference. HELOCs offer lower initial payments but require discipline. Personal loans offer predictability.

Qualification Requirements

HELOCs require:

• Home ownership with equity (duh)
• Credit score typically 680+ (some lenders go to 640)
• Debt-to-income ratio under 43-50%
• Home appraisal ($500-800 cost, often waived)
• Proof of income
• Homeowners insurance
• Time: 2-4 weeks for approval and funding

Personal loans require:

• Credit score 580+ (rates vary widely)
• Proof of income
• Debt-to-income ratio under 40-45%
• No collateral needed
• Time: 1-7 days for approval and funding

Winner for speed: Personal loan. You can get approved and funded in 24-48 hours with lenders like SoFi, LightStream, or Upstart.

Winner for bad credit: Personal loan, paradoxically. If you have equity but a 590 credit score, you might not qualify for a HELOC. But personal loan lenders (especially online ones) work with fair/poor credit—they just charge higher rates.

Tax Deductibility

HELOCs:

• Interest is tax-deductible if used to buy, build, or substantially improve your home
• Not deductible for debt consolidation, car purchases, vacations, etc.
• Subject to mortgage interest deduction limits ($750,000 combined mortgage debt)

Personal Loans:

• Never tax-deductible
• Exception: Business loans for legitimate business expenses

Winner: HELOC for home improvements. If you're renovating your kitchen or adding a bedroom, HELOC interest is deductible, effectively lowering your cost by your marginal tax rate (22-37% for most).

Personal loan interest is never deductible, regardless of use.

Risk: What Can You Lose?

HELOCs:

• Your home is collateral
• Default = foreclosure
• Even if you have $200k equity and only owe $30k on the HELOC, you can lose the entire property
• Lenders can freeze or reduce your credit line in a housing downturn
• If home value drops, you could end up underwater

Personal Loans:

• No collateral at risk
• Default = credit damage, collections, possible lawsuit
• Wage garnishment possible if they sue and win
• No asset seizure (except through court judgment)

Winner: Personal loan for risk aversion. If you're worried about job security or ability to repay, an unsecured loan doesn't put your home on the line.

However: This cuts both ways. The "risk" of losing your home creates discipline. Homeowners are less likely to default on HELOCs than personal loans precisely because the stakes are higher.

Credit Impact

HELOCs:

• Appear as revolving credit (like a credit card)
• Don't count fully against debt-to-income for future loans if undrawn
• Hard inquiry on application
• Can improve credit mix

Personal Loans:

• Appear as installment loan
• Entire loan amount counts as debt immediately
• Hard inquiry on application
• Can improve credit mix
• Paying off on time builds strong payment history

Winner: Roughly equal. Both impact credit similarly.

Fees and Closing Costs

HELOCs:

• Often $0 closing costs in 2026 (competitive market)
• Some charge $500-2,000 (appraisal, title search, recording)
• Annual fees: $50-100 (many waive if you maintain a balance)
• Early closure fees: $300-500 if you close within 2-3 years
• No prepayment penalties usually

Personal Loans:

• Origination fees: 1-8% of loan amount (can be $300-2,400 on $30,000)
• Many lenders charge 0% origination fees (SoFi, Marcus, LightStream)
• No annual fees
• Prepayment penalties: rare in 2026
• Late payment fees: $25-50

Winner: HELOCs if you find a no-closing-cost option. Many personal loans also have zero fees, making this a wash with the right lenders.

Watch out: Some personal loan "no fee" claims hide fees in the APR. Always check APR vs. interest rate.

When HELOC Wins

Choose a HELOC if:

1. You have significant home equity (30%+ equity)
2. You need a large amount ($50,000+)
3. You need flexibility (uncertain timeline or multiple draws)
4. You're using funds for home improvement (tax deduction)
5. You have excellent credit (to get the best rates)
6. You can handle variable payments
7. You're disciplined (won't overspend just because credit is available)
8. You want the absolute lowest rate

When Personal Loan Wins

Choose a personal loan if:

1. You don't want to risk your home
2. You need money fast (24-48 hours)
3. You need a small to medium amount ($5,000-40,000)
4. You want fixed, predictable payments
5. You don't have home equity (renting, recent purchase, underwater)
6. You have fair credit but stable income (online lenders are flexible)
7. You want the loan paid off on a specific date (wedding in 4 years, fund over 3 years)
8. You value simplicity (one payment, one rate, done)

The Best of Both Worlds

Some borrowers use both strategically:

• HELOC as emergency fund: Open a $30,000 HELOC, don't draw unless needed. Costs $0-100/year, available if your car dies or you lose your job.
• Personal loan for immediate need: Take a $15,000 personal loan for debt consolidation today, keep the HELOC as backup.

Specific Scenario Breakdown

Debt Consolidation

$25,000 in credit card debt at 22% APR

HELOC at 9%: Save ~13% in interest, $2,925/year. But now your credit card debt is secured by your home.

Personal loan at 14%: Save ~8% in interest, $2,000/year. Unsecured, home is safe.

Best choice: Personal loan. You're consolidating unsecured debt—keep it unsecured. Don't put your home at risk for credit card debt.

Home Renovation

$40,000 kitchen remodel

HELOC at 9%: Interest is tax-deductible. Effective rate ~6.5% (at 28% tax bracket). Draw funds as contractor needs payment.

Personal loan at 13%: Not deductible. Lump sum upfront, paying interest on funds sitting in your account waiting to pay contractors.

Best choice: HELOC. Lower rate, tax deduction, draw flexibility.

Medical Expenses

$20,000 in medical bills

HELOC at 9%: Lower rate, but variable. If Fed raises rates, costs increase. Home at risk if you can't pay.

Personal loan at 15%: Fixed payment, no collateral risk. If medical issues affect your income, you don't risk foreclosure.

Best choice: Personal loan. Medical emergencies can impact income. Keep your home safe.

Wedding or Vacation

$15,000 for a destination wedding

HELOC at 9%: Lowest rate, but do you really want a lien on your house for a party?

Personal loan at 14%: Higher rate, but contained. Specific term, no home risk.

Best choice: Personal loan. Or better yet, save up. Don't leverage your home for discretionary spending.

Lender Recommendations

Best Personal Loan Lenders 2026:

• SoFi: No fees, 8.99-25.81% APR, $5k-$100k, funding in 1-4 days
• LightStream: Low rates for excellent credit (7.99-25.29%), no fees
• Marcus by Goldman Sachs: No fees, flexible payment dates
• Upstart: AI underwriting, good for thin credit files

Best HELOC Lenders 2026:

• Figure: Fast approval, 8.40%+ APR, $15k-$400k, no closing costs
• Spring EQ: Up to 90% CLTV, interest-only options
• Connexus Credit Union: Low rates for members

Bottom Line

Choose HELOC if: You have equity, want the lowest rate, need flexibility, and are comfortable with collateral risk.

Choose personal loan if: You want speed, simplicity, fixed payments, or don't want to risk your home.

The right answer isn't about which product is "better"—it's about matching the tool to your specific situation, risk tolerance, and financial goals.

Run the numbers for your scenario. A 5% rate difference on $30,000 over 5 years is $4,000-6,000. That's real money. But so is the peace of mind that comes from knowing a job loss won't cost you your house.

Choose wisely.