HELOC vs. personal loan: Which should you choose?

Core Insights - The article discusses the comparison between Home Equity Lines of Credit (HELOCs) and personal loans as financing options for homeowners with upcoming expenses or financial goals Group 1: HELOC Overview - A HELOC is a secured debt product backed by home equity, allowing homeowners to convert a portion of their home equity into cash [1][2] - The borrowing limit for a HELOC typically caps at 85% of the home equity, with a common draw period of 10 years followed by a 20-year repayment period [3] - Some lenders allow interest-only payments during the draw period, making it financially manageable [4] Group 2: Pros and Cons of HELOCs - Pros include borrowing power, flexibility in borrowing amounts, competitive interest rates, and potential tax deductions on interest for home improvements [5][6] - Cons involve foreclosure risk due to collateral, a lengthy approval process, reduced equity, and fluctuating payments due to variable interest rates [6][7] Group 3: Personal Loan Overview - A personal loan is an unsecured installment loan with fixed monthly payments, typically ranging from one to seven years [7][8] - Borrowing limits for personal loans generally cap at $50,000, with some lenders offering up to $100,000 for select borrowers [8] Group 4: Pros and Cons of Personal Loans - Pros include predictable payments, no collateral requirement, and a seamless application process [12][14] - Cons consist of higher interest rates compared to HELOCs, potential origination fees, and lower borrowing power [12][14] Group 5: Decision Factors - A HELOC may be preferable for homeowners with significant equity needing flexible borrowing options and who can manage timely payments [13] - A personal loan may be better for those seeking fixed payments, faster access to funds, or who prefer not to use their home as collateral [18]