HELOC vs. personal loan: Which is better?

Times are tough for most Americans. With inflation and interest rates high and a possible recession on the horizon, many of us are tightening our purse strings and looking for ways to cut corners.

Others are even exploring loans and credit lines, either as a way to cover rising costs or just as a financial safety net in case things go south.

HELOCs, also known as home equity lines of credit, and personal loans are common options for both strategies, but the two products aren't one and the same. Not sure which you should choose? Below, we'll break down when a HELOC is probably best and when a personal loan may be the smarter option.

Start exploring your HELOC options here to see if it makes sense for you.

When is a HELOC the best choice?

If you own a home, HELOCs are the better option "more often than not," according to Daniel Milan, managing partner at Cornerstone Financial Services in Southfield, Michigan.

For one, HELOCs usually have much lower interest rates than personal loans. They also have longer terms (meaning you have more time to pay them off) and you only pay interest on what you owe. This can help keep your interest costs to a minimum.

HELOCs can also be smart if your credit score is low since these are collateralized loans. This means the lender can seize your house if you fail to make your payments. 

"If you have subpar credit, it is easier to qualify for a HELOC over a personal loan," says Carl Holubowich, a certified financial planner and principal at Armstrong, Fleming, & Moore in Washington, DC.

Finally, HELOCs can also come with potential tax write-offs and, depending on how much equity you have, usually offer larger loan amounts, too.

"A HELOC could be a better choice if the borrower is looking to take out a large amount," says Kyle Enright, president of Achieve Lending in San Mateo, California. "Personal loans for as much as $50,000 can be relatively easy to find, but for more than that, it can be hard. Plus, personal loan lenders may require higher interest rates for very large amounts."

When is a personal loan the best choice?

Personal loans may be a better choice if you need quick access to money. As Milan explains, "The benefit of a personal loan is usually the speed and simplicity at which they can be completed."

With a personal loan, you can often get your funds within a few days. HELOCs take a month or more in most cases.

They're also a good option if you want a fixed payment (HELOCs typically have variable interest rates and payments) and for borrowers who don't have a home to borrow against — or who have very little equity in their properties.

Personal loans can also be helpful if you need only a small amount of money or you don't want to use your home as collateral.

"Personal loans are usually unsecured, so your home is not at risk if you default," Holubowich says. "If you have excellent credit or you don't have much equity in your home, it's often a better option."

Explore your personal loan options here now to learn more.

Alternatives to HELOCs and personal loans

HELOCs and personal loans aren't your only options if you need money for expenses or just want a financial safety net. If you own a home, you can also think about a home equity loan. These let you borrow against your home equity, give you a lump sum, and spread your payments equally across five to 30 years.

Cash-out refinances are also options for homeowners. Cash-outs replace your existing mortgage loan with a bigger one, giving you cash back in return. This is typically a good choice if average mortgage rates are lower than the rate you currently have on your mortgage loan.

Last but not least, credit cards are an option, too. Just keep in mind: These typically have higher rates than most other financial products, so you'll want to use them sparingly — and only if you have the funds to pay them off quickly.

Talk to an expert

If you're not sure what financial product is the best move for your money, talk to a financial advisor or mortgage broker. They can walk you through your options, as well as the unique pros, cons and costs of each.