Need a financial boost but not sure whether a home equity loan or a personal loan is the smarter choice? You’re not alone! Understanding the key differences between these two options can help you make the best decision based on your goals, budget, and whether you’re a homeowner.
Let’s break it down.
What Is a Home Equity Loan?
A home equity loan lets you borrow money using the equity you've built up in your home. Equity is the difference between what your home is worth and how much you still owe on your mortgage. For example, if your home is valued at $400,000 and you owe $250,000, you have $150,000 in equity.
With a home equity loan, you can typically borrow up to 80% of that equity — and you’ll receive the funds in a single lump sum. You’ll pay the loan back with fixed monthly payments, including interest.
What Is a Personal Loan?
A personal loan, on the other hand, isn’t tied to your home. It’s an unsecured loan, meaning you don’t need to provide collateral. You simply apply for a set amount through a bank, credit union, or online lender. Once approved, you’ll get the money in a lump sum and pay it back over time with interest.
Home Equity Loan: Pros & Cons
✅ Pros:
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Lower interest rates: Because it’s secured by your home, rates are often lower than credit cards or personal loans.
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Access to more funds: Depending on your home’s value and how much equity you’ve built, you may be able to borrow a large sum.
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Possible tax benefits: If the funds are used for home improvements, the interest may be tax-deductible. (Talk to your tax advisor to confirm.)
❌ Cons:
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Your home is collateral: If you can't repay the loan, you risk foreclosure.
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You must be a homeowner with equity: Not everyone qualifies.
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Potential fees: Origination or closing costs may apply.
Personal Loan: Pros & Cons
✅ Pros:
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Quick access to funds: Many lenders offer fast approval and next-day deposits.
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No collateral required: You don’t need to risk your home or assets.
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Fewer fees: Some lenders offer no-fee options.
❌ Cons:
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Higher interest rates: Since there’s no collateral, lenders often charge more.
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Lower borrowing limits: Ideal for smaller financial needs.
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No tax advantages: Unlike a home equity loan used for renovations, personal loan interest isn’t tax-deductible.
So, Which Loan Is Right for You?
Ask yourself what you’re using the funds for.
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If you're a homeowner planning a major renovation or looking to consolidate debt at a lower interest rate, a home equity loan might be your best bet.
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If you need a smaller amount quickly and don’t want to put your home on the line, a personal loan could be the way to go.
Both options can help you reach your financial goals — it just depends on your situation.
Need help navigating the numbers or figuring out which loan suits your needs? I’m happy to connect you with trusted lenders or answer any real estate-related questions along the way!
At The Jenkins Group, we're not just about buying and selling homes — we're here to support you in every step of your financial journey as a homeowner. Whether you're planning a renovation, consolidating debt, or just exploring your options, we're happy to connect you with trusted local lenders and resources to help you make confident, informed decisions.
💡 Have questions or want to chat through your options? Reach out anytime — we're here to help you make moves that matter.
The Jenkins Group -Your Home, Our Expertise
Serving South Shore & Greater Boston
