Are you interested in borrowing money? Are you aware of all your options, but unsure of which one is best? Have you narrowed your choices down to a personal loan or home equity loan?
Before we go any further, there’s something you need to remember: there are both pros and cons of a personal loan and home equity loan.
Making a decision comes down to knowledge. Knowledge of the pros and cons of each type of loan. Knowledge of what best suits your personal finances and budget at the present time.
Five Important Details
There’s no shortage of details to consider when comparing a personal loan and home equity loan. However, some are more important than others.
Here are five details that deserve your attention:
1. Interest Rates
Generally speaking, a home equity loan will have a lower interest rate than a personal loan. This is a result of putting your home up as collateral.
In other words, a home equity loan is secured by your home. A personal loan is an unsecured loan, which means more risk for the bank.
2. Loan Terms
A home equity loan is typically for a longer period, sometimes as long as 20 to 30 years. A personal loan, however, is more of a short-term loan. It varies by lender, but they’re usually in the one to seven year range.
3. Loan Limits
In most cases, a home equity loan is limited to 80 to 85 percent of your home’s equity. As for a personal loan, the amount you can borrow depends on your credit history, credit score, and income. A loan of up to $100,000 is not out of the question.
4. Eligibility Requirements
With a home equity loan, you need the following: at least 15 percent equity in your home, good credit, and a debt to income ratio of 43 percent or less.
As for a personal loan, good credit and a steady income are a must.
5. Funding Time
It takes longer to obtain funds from a home equity loan, since the lender will appraise your property. Conversely, funds from a personal loan can arrive as soon as one to two business days.
Don’t assume that one type of loan is better for you than another. Instead, compare the finer details, pros, and cons of both a personal loan and home equity loan.
Once you’ve collected all the necessary information, it’s time to make an informed decision. From there, you can obtain the funds you’re seeking and use them as planned.