Paying for a home project, whether it's a kitchen remodel, a new roof or a repair you didn't see coming, often means choosing how to borrow. Two common options are a home equity line of credit (HELOC) and an unsecured personal loan. They differ in what's at stake, how you receive the money and how the cost can change over time.
This guide is for educational purposes only and isn't financial advice.
How a HELOC works
A HELOC is a revolving line of credit secured by your home. A lender looks at how much your home is worth and how much you still owe on it, then sets a credit limit based on part of the difference. Our guide on how much you may be able to borrow with home equity explains that calculation.
Key features:
- Draw period, then repayment period. During the draw period you can borrow as you need, up to your limit, and many HELOCs let you pay interest only on what you've drawn. When the draw period ends, you repay principal and interest, and the payment can rise noticeably. Our guide on how a HELOC draw and repayment period works covers this in detail.
- Often a variable rate. Many HELOC rates move with a benchmark, so payments can change.
- Possible upfront and ongoing costs. These can include an appraisal, closing costs and an annual fee, depending on the lender.
- Your home is the collateral. If you can't repay, you could lose your home to foreclosure.
How a personal loan works
A personal loan pays out a lump sum, which you repay in fixed monthly payments over a set term. Most personal loans for home projects are unsecured, which means your home isn't collateral.
Key features:
- One lump sum. You get the full amount up front and start repaying right away, whether or not you've spent it all.
- Usually a fixed rate. The payment stays the same for the life of the loan.
- Possible origination fee. Some lenders charge a fee that may be subtracted from the amount you receive. See loan origination fees explained.
- No home valuation. Because the loan isn't secured by your home, there's typically no appraisal, which can make the process simpler.
Side by side
- What's at risk: a HELOC is secured by your home; most personal loans are not.
- How you get the money: a HELOC lets you draw over time; a personal loan pays out once.
- Rate type: HELOCs are often variable; personal loans are usually fixed.
- Payment pattern: a HELOC's payment can change with your balance and the rate, and again when repayment begins; a personal loan's payment is the same each month.
- Upfront costs: a HELOC may involve an appraisal and closing costs; a personal loan may carry an origination fee.
- How much you can borrow: a HELOC depends on your equity and the lender's review; a personal loan depends on the lender's review of your credit, income and debts.
- Time horizon: HELOCs often have long draw and repayment periods; personal loan terms are commonly shorter.
Matching the option to the project
The shape of the project often points toward one option or the other.
Projects with a known, one-time cost — say a quote for a specific repair — fit the lump-sum nature of a personal loan. You know how much you need, you borrow it once, and the fixed payment makes budgeting simpler.
Projects that unfold in stages — a renovation where costs show up over months — can fit a HELOC's draw period, since you borrow only as bills come due and typically pay interest only on what you've drawn.
Smaller projects may not justify the time and costs of setting up a HELOC. Larger projects may need more than a personal loan lender will offer, which is when home equity often comes into the conversation. Our guide on home equity loans vs. HELOCs covers the other home equity option, a fixed lump-sum loan secured by your home.
The risk side
Borrowing against your home deserves extra care. If your income drops or rates rise, a variable-rate HELOC payment can become harder to manage, and the debt is tied to your house. A personal loan doesn't put your home on the line, but missed payments can still damage your credit and lead to collections.
Before choosing, it can help to test the payment against a tougher scenario: what if the HELOC rate went up, or your income went down for a few months? If the answer makes you uneasy, that's useful information.
Comparing the total cost
Monthly payments alone can be misleading. A HELOC with interest-only payments during the draw period can look inexpensive early, then cost more once principal repayment begins. A personal loan with a longer term can lower the payment while raising the total interest. To compare fairly:
- Estimate what you'd draw on the HELOC and when, and how long you'd take to repay it.
- Include all fees: appraisal, closing and annual fees for the HELOC; origination fee for the personal loan.
- Add up everything you'd pay over the full life of each option.
Our guide on how to compare the total cost of a loan walks through this approach.
Questions to ask before you decide
- Is the project cost known now, or will it grow over time?
- Am I comfortable using my home as collateral?
- Is the HELOC rate fixed or variable, and how is a variable rate set?
- What fees and closing costs come with each option?
- What will the HELOC payment look like once the draw period ends?
- Does the personal loan payment fit my budget each month?
Next steps
Lendara is a marketplace, not a lender. Lendara receives compensation from partners, which may impact which offers appear and their order; we don't include all offers available. Participating lenders make their own credit decisions and set their own rates, fees and terms, which vary by applicant and can't be known until you see an offer. You can explore home equity and HELOC options or compare personal loan options from participating lenders.