3 times a home equity loan is better than a credit card

When it comes to financial products and services, timing is everything. 

For example, those who locked in an ultra-low mortgage interest rate in 2020 and 2021 have saved significantly more than homebuyers who acted in the last two years. Meanwhile, savers earned exponentially more interest with certificates of deposit (CD) and high-yield savings accounts opened in 2023 and 2024 than they could have a few years ago. It's vital to make the best and most informed choice at the right time. And it also means understanding when one product is better than another.

For homeowners, there are better times to use their home equity instead of their credit cards. Since their home will be the collateral in such transactions, it's important to make an informed decision or you could risk losing your home if you can't pay back what you've borrowed. But when matched against the alternatives, it becomes clear that a home equity loan is a great choice. Below, we'll break down three times a home equity loan is better than a credit card.

Start exploring your home equity loan options here to see what rate you could qualify for.

3 times a home equity loan is better than a credit card

Here are three times homeowners may be better served using their home equity versus swiping their credit cards.

When interest rates are high

We're still in a high-interest rate climate, even if many expect the Federal Reserve to start cutting rates this year. When the benchmark interest rate range is as high as it's been (currently between 5.25% and 5.50%), rates on all borrowing products will rise in tandem. 

But how much they actually climb will vary based on the product. So, credit cards are around 20% or higher right now, making the use of them a poor decision for most consumers. But home equity loans, even at their higher-than-usual rates, can still be secured for under 10% right now. That's a substantial difference in rates and will help homeowners keep much more of their money intact.

See what home equity loan interest rate you could get here today.

When you want to use it for home repairs

It can be tempting to use your credit card to make major home repairs and renovations. But avoid that temptation and instead strongly consider using a home equity loan instead. Unlike credit cards (and personal loans), the interest you pay on your home equity loan can be tax-deductible if used for qualifying home repairs and renovations. This feature gives home equity loans a major edge over other borrowing products.

"Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS explains online. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."

When you know exactly how much you'll need

It's easy to get into credit card debt, especially when you don't know exactly how much you need to borrow. But if you have an exact figure in mind, a home equity loan with its lump sum payouts may be preferable to the revolving credit line of a credit card. This will allow for more budgeting predictability since you'll know exactly how much to pay back each month versus a credit card, in which minimum payments can and will change depending on your activity.

The bottom line

While credit cards can be a great resource for many, sometimes they're just not as beneficial as the alternatives. And for many American homeowners, now may be one of those times. Instead, these owners should instead turn to their accumulated home equity for extra funding. By doing so they'll secure a lower interest rate than they would have got with a credit card and, if they use it for eligible purposes, they'll be able to deduct the interest they paid on the loan come tax season. Plus, the structure of the loan will be much easier to budget for than a credit card with adjustable payments each month. As noted, timing is everything but right now it's generally a better time to use a home equity loan instead of a credit card.

Start exploring your home equity loan options online here and get started.