Know your options: Comparison guide to HELOCs vs other financing options
It makes sense to compare your options before making a big financial decision like renovating your home, paying for college, or consolidating debt.
The question is, which financing option is best suited for your needs? Should you go with a Home Equity Line of Credit (HELOC), home equity loan, personal loan, cash-out refinance, or maybe even a credit card?
In this guide, we’ll compare the pros and cons of each option, so you can confidently choose one that aligns with your financial goals. Whether you’re seeking flexibility, low interest rates, or fast approval, we’ll help you confidently choose the right option.
Find Your RateComparison guide to HELOCs: Quickly see how HELOCs stack up to other loans and financing options
When considering your financing options, it’s important to weigh key factors like approval times, loan amounts, terms, and eligibility requirements.
Below is our breakdown comparing these essential features for each loan type: HELOC vs home equity loan, personal loan, credit card, and cash-out refinance loan.
| Feature | HomeEQ HELOC | Personal Loan | Credit Card | Cash-Out Refinance |
|---|---|---|---|---|
| Common Uses | Revolving cash to pay for large expenses | Lump sum of cash to pay for a range of expenses | Revolving line of credit and carry a smaller balance | Lump sum of cash by refinancing a mortgage |
| Approval time | Within 10-15 minutes | Days to weeks | Minutes to 1 day | Weeks to months |
| Funding | Lump sum at closing, within as few as five days | Lump sum at approval, within days to weeks | Immediate upon approval and charge | Lump sum at closing, within days to weeks |
| Financing type | Secured by property | Unsecured | Unsecured | Secured by property |
| Loan amounts | Up to 80% of home value | Varies, typically $1,000-$100,000 | Varies, typically $1,000-$25,000 | Up to 80-90% of home value |
| Term lengths | 5, 10, 15, 20, and 30 years | 1 to 7 years | Revolving, no set term | Typically 15 or 30 years |
| Draw periods | 3 or 5 years | N/A | Revolving | N/A |
| Minimum credit score | 640 | 580-700+ | Varies; often 600+ | 620-700+ |
| Maximum DTI ratio | Up to 50% | 40-50% | N/A | 40-50% |
| Interest rates | Variable, typically 8-12% APR | Fixed or variable, 15-20% APR | Variable, 15-25% APR | Fixed or variable, 4-7% APR |
Pros and cons: Comparing HELOCs vs other financing options
When you’re looking to finance a major expense, such as repairing your home’s foundation, consolidating debt, or paying off medical bills, there are several options available, each with its own set of pros and cons.
Let’s break down the most popular options — so you can find the one that best fits your needs.
HomeEQ HELOC
A Home Equity Line of Credit (HELOC) allows you to borrow against the equity you’ve built in your home so that you can use that equity as cash. The HomeEQ HELOC offers a fully-digital, fast approval process, giving you access to funds quickly to use as you please.
Get approved in as little as 10-15 minutes and apply anytime, 24/7. This allows you to access funding without the more complex timelines and processes of traditional banks.
As a line of credit you can draw and repay funds as needed up to the loan limit, similar to a credit card’s revolving credit line. The draw period can be up to five years where you can borrow up to 100% of the credit limit.
After the draw period, you enter the repayment phase where you’ll pay back both the principal and interest. With flexible term length options, you can choose between a 5, 10, 15, 20 or 30 year HELOC with HomeEQ.
Pros:
- Get fast approval with fully-digital, 24/7 application and receive access to funds within as few as five days
- Typically see lower interest rates than personal loans or credit cards
- Allows access to a large amount of cash upfront
- Borrow between $25k-$350k, up to 80% of your home’s value
- Choose your term length from 5-30 years
- Predictable and stable monthly payments
- Leverage equity from primary residences and second homes
- Avoid prepayment fees
- See possible tax-deductible interest if used for home improvements (consult a tax advisor to see if you qualify)
- Flexible access to funds over time with additional draws up to 100% of the credit limit
Cons:
- Your home is used as collateral, meaning you risk foreclosure if you can’t make monthly payments.
- The application process might be more in-depth than a new credit card, for example. Approval for a HELOC requires an assessment of your income, credit score, home value, and other documentation. HomeEQ makes this process simple, with a push-button application that includes digital verification for these details and takes only 10-15 minutes.
Common uses: A HomeEQ Heloc is ideal for a family planning to finance extensive home improvements over time, or for somebody consolidating high-interest debt into a lower-rate solution, for example.
Home equity loan
A home equity loan provides you with a lump sum of money upfront, based on the equity in your home. A home equity loan differs from a HELOC, as there is no draw period or ability to access additional funds as you repay the loan.
Depending on the lender, a home equity loan might have a fixed or adjustable interest rate and term length options ranging from 5-30 years. You repay the loan with monthly payments over a set term, and you begin repaying both the principal and interest immediately.
Pros:
- Options for fixed or adjustable interest rate, depending on the lender
- Allows access to a large amount of cash upfront
- Predictable and stable monthly payments
- Interest may be tax-deductible if used for home improvements (consult a tax advisor to see if you qualify)
Cons:
- You must know the exact amount you need upfront, as borrowing more requires a separate loan
- Less flexibility than a HELOC
- You start paying interest immediately, regardless of when or if you use all the funds
Common uses: Home equity loans are a great option for someone paying for a large, one-time expense, like a child’s college tuition or a kitchen renovation, for example.
Personal loan
A personal loan is an unsecured loan, meaning it doesn’t require collateral. You receive a lump sum and pay it back over a set period with interest.
Pros:
- Quicker approval process within days to weeks, compared to some financing options
- Typically faster than home-based loans because there are fewer qualification requirements
- No collateral required, so your home is not at risk if you can’t make payments
- Fixed or adjustable interest rates and term length options
Cons:
- Higher interest rates compared to HELOCs or home equity loans
- Smaller loan limits, meaning you may not be able to borrow as much
- Less favorable terms for borrowers with lower credit scores
Common uses: Personal loans are useful for someone needing quick cash to cover medical bills, purchase a car, or consolidate credit card debt, for example.
Credit card
Credit cards offer a revolving line of credit for purchases and can provide short-term financing if you pay off the balance quickly.
Pros:
- Easy access to credit for everyday expenses or emergencies with the convenience of a physical credit card for transactions
- Potential rewards programs like cash back or travel points
- No approval or waiting time to access funds using quick applications for new credit lines
Cons:
- Very high interest rates up to 36% APR, especially for long-term balances
- Carrying a large balance can hurt your credit score by raising your credit utilization
- Not suitable for large, long-term expenses like home renovations and transactions that require cash
Common uses: Credit cards are ideal for smaller, everyday expenses or emergencies where you plan to pay off the balance within the month, for example.
Cash-out refinance loan
With a cash-out refinance loan, you replace your existing mortgage with a new one, borrowing more than you currently owe and taking the difference as cash.
Pros:
- Often lower interest rates than personal loans or credit cards
- Access to a large sum of money
- Allows for one simple monthly payment as it replaces your current mortgage with a new one
- Interest might be tax deductible for home improvements (consult a tax advisor to see if you qualify)
Cons:
- Lengthy approval process
- Closing costs and fees can be significant
- Resets your mortgage, often extending the time you’ll need to pay it off
- May increase your monthly mortgage payment if rates have risen and loan amount goes up
Common use: Cash-out refinance loans are great for someone looking to refinance their mortgage while also financing a large, one-time expense like purchasing a car, for example.
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How to decide which loan option is best for you: Explaining 7 common loan considerations and key factors
Choosing the right financing option depends on your specific financial needs and goals. Here are 7 key factors to consider when comparing options like a HELOC vs home equity loans, personal loans, credit cards, or cash-out refinance loans.
1. Variable rates vs. fixed rates explained
- Variable rate: Options like a HELOC or credit card often come with variable interest rates, which means your payments can fluctuate over time based on market conditions. This can be beneficial when rates are low, but it introduces the risk of increasing payments if rates rise.
- Fixed rate: Personal loans, home equity loans, and cash-out refinance loans sometimes offer fixed interest rates, providing stability in your monthly payments over the life of the loan. This can be useful if you need predictable payments for budgeting purposes.
2. How you access your cash once the loan is approved
- Revolving credit: With a HELOC or credit card, you have access to a credit line that you can use as needed over time, especially as you pay back the loan. This is ideal if you expect ongoing expenses like home improvements or recurring medical bills.
- Lump sum: Personal loans, home equity loans, and cash-out refinance loans provide a lump sum upfront. This is suitable for one-time expenses like debt consolidation, purchasing a vehicle, or paying for a wedding.
3. How long each loan type takes to apply and get approved
- HELOCs: Applying for a HELOC can take only minutes with HomeEQ. However, it can take weeks with other lenders who require a traditional underwriting review and document submission process. HomeEQ streamlines this with digital verifications.
- Home equity loans, personal loans, and cash-out refinance loans: The applications for these can take several minutes to several days to complete, depending on the lender and how much information is required (income, credit history, home appraisal, etc.). These can be approved within anywhere from days to several months, depending on the lender, the loan type, and your situation.
- Credit cards: Applications are quick, often only taking about 5-10 minutes to complete, especially if done online. Approval is almost instant, but they typically come with much smaller credit limits.
4. The maximum amounts you can borrow for each loan type
- HELOC, home equity loan, and cash-out refinance: These allow you to borrow based on your home’s equity, which can result in larger loan amounts, often up to hundreds of thousands of dollars.
- Personal loans: These are based on your creditworthiness and income, usually offering smaller loan amounts, typically up to $100,000.
- Credit cards: Offer the lowest borrowing limits, usually a few thousand dollars up to about $25,000.
5. The collateral required for each loan type and its impact on terms
- HELOC, home equity loan, and cash-out refinance loan: Each of these use your home as collateral, meaning you get better interest rates, but there is the risk of foreclosure if you can’t repay.
- Personal loans and credit cards: These are unsecured meaning they don’t require collateral, so they tend to come with much higher interest rates to compensate for the lender’s risk.
6. Important questions to ask lenders about their “fine print” details
As you narrow down your choices, understand how each loan option works:
- How do you apply, and how long does it take to get approved?
- How will you access the cash? Will you receive a lump sum or have access to revolving credit?
- How are payments structured, and will the monthly payments stay the same or change over time?
7. Important questions to ask yourself about your loan’s short-term and long-term impact on your finances
Finally, evaluate how the loan will affect your finances now and into the future:
- How will it help you cover the immediate expenses you’re facing?
- How will you handle repayments, and how might those payments change over time?
- What’s the overall cost of the loan or credit line, and how does it fit into your long-term financial goals?
Start your financial journey with a HomeEQ HELOC
A HomeEQ HELOC empowers you to make the most of your home’s equity and access cash when you need it — quickly, easily, and on your terms.
Whether you’re funding a home renovation, consolidating debt, navigating an unexpected expense, or planning a milestone event, HomeEQ offers a seamless, fully digital experience. Start our process to find your rate and see whether a HELOC will work for you compared to other financing options.
