Home equity loan vs. personal loan: Which is cheaper now?

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Home equity loans and personal loans can provide homeowners with substantial funding. Getty Images
Recent swings in the stock market, inflation that remains above where the Federal Reserve would like it to be and an overall sense of uncertainty about the economy’s health have left many Americans wary about what lies ahead for their finances. Should the stock market tumble again or inflation tick up, many could find themselves in difficult financial situations. Because of the unknowns that exist amid the murky economy, many may be searching for a way to get extra funds to stabilize their finances right now.
Homeowners looking to borrow money have a wide variety of options available to them, thanks to the average of $313,000 of home equity they have in their homes right now. Home equity lines of credit (HELOCs), home equity loans and cash-out refinancing provide homeowners a way to leverage their home equity to borrow money. Homeowners can shop the credit card and personal loan markets to find the funding they need, too. Credit card rates are near historic highs, though, making them an expensive way to borrow money. Personal loans tend to offer far better rates, but they may leave homeowners wondering if they can get a better deal by tapping their equity through a home equity loan.
The simplest way to figure out which option is cheaper is to find out what your monthly payments would be based on today’s average rates for home equity loans and personal loans. We’ll do the math below.
See what home equity loan rate you’d be eligible for here.
Home equity loan vs. personal loan: Which is cheaper now?
If you’re ready to take out a loan but are unsure of whether you should get a home equity loan or personal loan, it’s important to know how much each loan will cost you monthly. Knowing what that cost will be much easier to plan for when you’re borrowing a home equity loan or personal loan since both products use a fixed rate. Here’s what your monthly payments would look like if you took out a $25,000 home equity loan and personal loan at today’s average rates:
5-year home equity loan at 8.40%: $511.71
$511.71 5-year personal loan at 12.36%: $560.67
Here’s how much you’d pay each month if you took out a $50,000 home equity loan and personal loan at today’s average rates:
5-year home equity loan at 8.40%: $1,023.42
$1,023.42 5-year personal loan at 12.36%: $1,121.34
And here’s what your monthly payments would be for a $100,000 home equity loan and personal loan at today’s average rates:
5-year home equity loan at 8.40%: $2,046.84
$2,046.84 5-year personal loan at 12.36%: $2,242.68
Right now, home equity loans are significantly less expensive than personal loans, resulting in major savings for homeowners, regardless of the amount borrowed.
Shop today’s low home equity loan rates here now.
Why a personal loan could still be worth it
While personal loans are more expensive than home equity loans at today’s rates, they provide distinct benefits that could make them the right choice for some homeowners. First, personal loans are unsecured loans, which means you don’t have to offer any collateral when you borrow. Home equity loans use your home as collateral, which means you could lose your house if you can’t make your home equity loan payments.
Second, the approval process for home equity loans can be more complex than personal loans. Lenders take into account your existing home equity, your loan-to-value ratio and other home-related metrics that can make it difficult to get approved for some homeowners. Personal loans, on the other hand, typically have less stringent lending requirements than home equity loans, which can make them easier to qualify for.
Find a personal loan amount and rate that fits your budget here.
The bottom line
Home equity loan rates are considerably lower than personal loan rates, resulting in monthly payments that can be tens or hundreds of dollars cheaper, depending on the loan amount. Those savings figures may be all a homeowner needs to know that a home equity loan is a better fit for their budget. However, it’s important to remember that home equity loans require you to use your house as collateral to get your funding. If you aren’t comfortable with the risk of losing your home over a home equity loan, a personal loan could be a safer, albeit more expensive, option.