Are you terribly confused between Home equity loan vs. personal loan? Well, no worries, we are here to help you make the right decision. Both of these loans are a good option if you want to pay off your debt or need money for medical expenses. You can also use the loan for making home renovations.
But which is the right one for you? We will get to that but first, let’s dig a little deeper into what these loans are about and how they work.
What is a home equity loan?
Home equity loans involve a lengthier process. It will take a bit more time to approve your application and sanction the loan than a personal loan, but the wait is worth it because of the low-interest rates.
One of the biggest advantages of the home equity loan is the low-interest rates, but there is also a disadvantage. When you take out a home equity loan, your house will be used as collateral. So if you fail to pay off the loan in time, your house will be acquired by the lender.
The timeframe to pay off the home equity loan is typically between 5 to 15 years, but it may vary according to different banks or financial institutions. Once the loan is sanctioned, you will get the entire amount in your account. You can borrow up to 85 % of the total value of your property.
What is a personal loan?
A personal loan is very popular among borrowers because it is offered by almost every bank, private money lenders, and other financial institutions. Also, the application process and approval time for these types of loans do not take too long.
As soon as it is approved, you can get the entire amount in a matter of a few days! The repayment method for personal loans includes monthly payments.
Although it is quicker and easier to get personal loans, you will have to have a good credit score to find low-interest rates personal loans. Usually, the interest rates on this type of loan tend to be quite high. Borrowers with low credit scores will find it hard to find low-interest rates personal loans.
Since you can get personal loans from several places, they all vary in their terms and conditions. It is best to research a bit and find a personal loan that suits your needs. You can apply for a personal loan online!
Which one is better suited for your needs?
Here we provide you with a few pointers that can help you decide which type of loan you should apply for:
Home equity is best suited for those times when you need a large amount of money. If you only need a small amount, it is best to opt for a personal loan since most banks will not allow you to take out a mere 1000 dollar home equity loan. You can not get a home equity loan of fewer than 10,000 dollars.
Low rates are your priority
If you want the lowest interest rates, then a home equity loan is your best option because you cannot get low-interest rates on personal loans. Also, taking out a low-interest home equity loan will be better because you will not have the added stress of paying a huge amount every month.
Do you want funds to renovate your home? Well, then nothing can be better than a home equity loan. When you use a home equity loan to renovate, the interest on your taxes gets deducted.
Do not want to use your house as a collateral
You may not be too thrilled about using your as collateral to take out a loan. In that case, you can opt for a personal loan since these loans generally do not need you to use anything as collateral. In other words, personal loans are unsecured loans.
Not a good enough credit score
To be approved for a personal loan, you need to have an excellent credit score. Having a perfect credit score also allows you to have lower interest rates. But if you cannot get approved for a personal loan because of your bad credit score, a home equity loan can be your only option.
Both of these loan types have their advantages and disadvantages. Consider these points above and choose wisely.