Should You Use a Personal Loan or HELOC

                                   

Today there are many options available to make a purchase: cash, prepaid cards, checks, credit cards, debit cards, loans, personal loans, home equity line of credit (HELOC) and more. With all these choices, it can be difficult to decide which payment method to choose. However, paying with cash will always save you money and offer the most negotiating power.

When it comes to making home improvements there are two types of loans you can choose from: secured and unsecured. An asset such as home secures secured loans. Unsecured loans are not secured by an asset and are riskier for lenders. Borrowers are evaluated based on credit scores.

Homeowners can use an unsecured loan such as a personal loan also known as a signature loan or use a secured loan such as a HELOC to pay for home repairs. Personal loans are loans offered by a bank or financial institution. You get a fixed amount of money in a lump sum and pay the money back over time through monthly payments. 

Mortgage companies or financial institutions allow homeowners to borrow money using the home’s equity as collateral called HELOCs also known as a second mortgage. HELOCs let you convert your home equity into cash, which can be used for home improvements, starting a business, debt consolidation, college education, or other expenses.

A HELOC works similar to a credit card because it has a revolving balance that allows you to borrow up to a specific amount for the life of the loan. You must repay the loan in full when you sell the home.

Get all the facts and ask questions when deciding between using a personal loan or HELOC. Here are the advantages of using a personal loan versus using a HELOC.

Personal Loan

1. Quicker approval times
2. Shorter terms
3. You don’t have enough equity in your home
4. You don’t want to use your home as collateral
5. Easier to qualify for
6. No fees
7. You know the loan’s full cost upfront and how much you are borrowing
8. Fixed interest rate
9. Fixed monthly payment

HELOC

1. You aren’t concerned about a fixed rate
2. Approval for large amounts
3. Interest payments may be tax deductible
4. Can borrow money periodically
5. More flexibility to use money as needed
6. Interest paid over time may be lower