Personal Loan vs. Home Equity Loan: Which is Better for You?
Life is unpredictable. Most people think that once you own a home, you’re set. However, despite the fact that owning a home is wonderful, it can also be expensive. There are also unexpected situations that can make things difficult for you financially. That’s where a personal loan or a home equity loan can come in handy.
Personal loans and home equity loans can be used for home improvements, debt consolidation, medical expenses, and more. However, there are different advantages and disadvantages to choosing one or the other. In some cases, a personal loan will help you more than a home equity loan. The same goes the other way.
To determine the better option, you must understand the difference between the two and how they work. Here is a short guide about the difference between personal loans and home equity loans:
Personal Loans
You can get personal loans from online lenders, banks, and credit unions. These loans are available for various needs. For example, you can use them to consolidate all your debts. The most important thing you need is a good or excellent credit score to borrow money at low interest rates. Of course, if your credit score is fair to low, you still have a chance of getting approved. It just won’t be as good compared to if you have a good credit score.
The application process is pretty straightforward. You just need to fill out a form, provide all the required documentation, and you’re good to go. Just remember to scout other lenders before deciding right away. Each lender has a different structure, and it would be wise to compare before you commit to anything.
After you’re approved, the funds should arrive pretty soon. While the same can be said for home equity loans, personal loans are still funded a lot faster.
Home Equity Loans
A home equity loan or a second mortgage uses the value of your home minus the original mortgage. This is why it’s vital to make home improvements and protect the value of your home. Home equity loans allow homeowners to use the homes’ equity they’ve built up to take out loans.
The typical terms for home equity loans are from 5 to 15 years. However, that’s the standard expectation. The terms still vary from lender to lender. The most valuable advantage that home equity loans have over personal loans is the low interest rate.
The loan uses your home as collateral. Of course, this can be a blessing or a curse, depending on your financial habits. It gives lenders a claim over your home should you default on your loan.
The application is a little more complex as compared to personal loans. There is still the option of applying online, but the process will take a few weeks or more. They have to evaluate your property first and confirm its value.
Once approved, you will get your loan right away.
Conclusion
Both personal and home equity loans offer different advantages and disadvantages. The better choice will depend upon the purpose of your loan. If you’re looking for a loan to help with debt consolidation, a personal loan is better. If you need to make home improvements, home equity loans provide tax incentives. Consider what you’re financing, and then decide which of the two will suit your goals best.
Here at Mid-Town Loans, we understand that life can be difficult. Some financial pickles are time-sensitive, and we’re not here to overwhelm you. We want to help you. We offer ,installment loans online with fair interest rates and no hidden fees. Let us help you; apply for a loan today!