See which type of home renovation loan is best for you—a home equity loan or a personal loan.

When it comes to home improvements, home equity loans and personal loans can both help you get the work done. Here’s a quick look at the differences between these two financing options.

Home equity loan vs. personal loan

Home equity loans and personal loans are both flexible products. A key difference between the two loan types is that a home equity loan, sometimes called a second mortgage, uses your home as security while a personal loan is usually, but not always, unsecured. A secured loan offers less risk to lenders and therefore secured loans usually have lower interest rates.

A personal loan can be approved rather quickly, often within a week and sometimes within a day or two. The processing of a home equity loan could take between two to six weeks to finalize because the lender has to verify your home’s value and your home equity.

Another key difference lies in repayment terms. Personal loans must often be paid back in a shorter length of time, often one to five years; this can make monthly payments higher. Home equity loan terms often allow borrowers five to 20 years (or more) for repayment and may have lower monthly payments.

How much home equity is needed for a home equity loan?  

Equity requirements vary among lenders, but most require a homeowner to have at least 20% equity in their home.

Equity is equal to your home’s value minus what you owe. For example, if your home is worth $300,000 and your mortgage balance is $200,000, your equity is $100,000; you’d likely qualify for a home equity loan because you have 33% equity. (Loan approval takes other factors into consideration too, like income, credit score and other debt.)

Where to get a loan for home improvements

At Consumers, we offer a wide selection of loans for home improvements. Turn to us for great rates and service with a smile for home equity loans, including home equity lines of credit (HELOCs) and personal loans.

 

All loans subject to approval. Rates, terms, and conditions are subject to change and may vary based on credit worthiness, qualifications, and collateral conditions. Federally Insured by NCUA