Unsecured Loans vs. HELOCs

Unsecured Loans HELOCs
Can only get a limited amount of money Can secure you a large loan amount
Charges a high interest rate Charges a low interest rate
Takes less time to process Might take up to a month to process
Requires no collateral Requires collateral

When it comes to getting a loan, you have to decide which type of loan you want to get and for what purpose. Both Personal loans and HELOCs (Home Equity Line of Credit) are good ways of getting a good amount of money. The purpose of the money can be to cover a project or tackle an emergency. Still, which among the two is the better option? Unsecured/Personal loans have grown in popularity over the years with many lenders offering them to consumers at competitive interest rates. This means you can get a loan processed fast especially when you have a good credit score.

HELOCs are a good source of getting a large sum of money. You borrow from the lender against your home and pay the loan back with interest. These two options have their advantages and disadvantages. It’s up to you to decide which method best suits your needs. HELOCs, although a good source of money for projects like home improvement, they have become increasingly unpopular among many homeowners. No one wants to risk borrowing against their homes anymore after the 2008 Recession when many homeowners had to default on loans and mortgages.

This is why unsecured loans have become quite popular even though HELOCs can get you a larger amount from a lender. Most borrowers opt for the HELOC only when they need more money than is being offered as a personal loan. Mostly, personal loans have limits and the only way to get more from a lender is when you have a borrowing history with them.

Unsecured/Personal Loans

Getting a personal loan is easy especially when you have a good credit score and meet most of the criteria the lender requires. The good thing about this type of loan is you can use it for anything you want without any limitations. This, however, doesn’t mean you should borrow money for anything like going on holiday or having a party. Remember you still have to pay it back on time and with an interest that’s higher than that of a HELOC.

Personal loans are good for tackling important matters that require a little less money than what HELOCs offer. You can use this loan to pay off your credit cards or set up a small project that doesn’t require a lot of money. An unsecured loan is self-explanatory because you don’t need any collateral to secure it. The lender simply goes by your credit score to approve the loan.

Today, there are many types of personal loans offered by a wide range of lenders meaning you can choose the one that best suits your needs. Interest rates are competitive and depend on how much you want to borrow. The amount has to be within the limit of the personal loan they offer at their establishment. This type of loan is a better option when you don’t want to use your home to secure a HELOC which carries the risk of foreclosure in case you default on the loan.

HELOCs take longer to process than unsecured loans. Some unsecured loans even take a matter of hours to process from start to finish especially when you have a good credit score. The best option for an emergency that needs quick access to cash is this type of loan because no more appraisals should be done other than viewing your credit score. This is why in recent years more borrowers are opting for personal loans even with a slightly higher interest rate and a smaller amount of loan accessible.


A HELOC (Home Equity Line of Credit) is the value of your home that you can get in terms of a loan. This value is added to what you already owe on the home as a mortgage if you still have one. A HELOC acts similarly to a credit card where you still get more money on top of what you owe but up to a certain limit. This loan is given to borrowers for a period of mostly up to 10 years to pay it back in full. This additional payment period is referred to as the draw period where you have to pay the installments agreed upon with the lender for this duration.

Once you decide to apply for HELOC, take a moment and evaluate your financial situation. You should have the ability to pay it back in full. Only when you have a good credit score and own around 20% equity on your home can you get a loan approved. The whole process to get this type of loan is long and tedious. This makes it not the best way to tackle an emergency that requires quick cash. It’s advisable to apply for a HELOC when you have enough time to wait for the house appraisal and loan approval. The whole process can take even longer than 30 days from start to when you get the money in your account or as a check.

The one advantage why you might consider a HELOC is the fact that it comes with low-interest rates meaning you don’t pay back very high from the amount you borrowed. This makes it easier to pay it back in full. Personal loans have varying interest rates but are still higher as compared to HELOCs. If you can be patient enough to wait for the approval process then the HELOC is a better option for a project that requires more funds. Still, it’s important to note that when there is a fluctuation in the market, it can affect the rate for the loan due.

Take a HELOC when you have a plan of how you can pay it back as soon as possible to avoid ballooning of the amount based on increasing interest rates. Take an amount you can clear within the stipulated period to avoid defaulting on the loan because this can lead to your home being foreclosed. The good thing about getting a HELOC for a project to improve the house is you can get a tax refund at the end of the financial year.  

Choosing the Best Loan

The two types of loans have their advantage and disadvantages but the choice of which one to take lies with you as the borrower. Think through what you need the loan for and how long it’ll take you to pay it back in full. Are you in a position to pay back the monthly installments as required by the lender? It’s even important to think through whether you need any of these loans at present or the project can wait. Remember, defaulting is not an option and it can lead to complications and even foreclosure in the future. This is the risk you have to deal with when borrowing any of these loans.

How much do you need and what interest rate are you willing to pay for it? HELOCs are attached to your home and proper valuation can get you more money than unsecured loans. The interest rate charged on it is lower than that of an unsecured loan that gets you less money. Still, using your home as collateral for a HELOC is not something you take lightly as it carries serious consequences in case you default on the loan.

The good thing is there are competitive rates available today due to the increase in the number of lenders for HELOCs and unsecured loans. Get to know the terms and conditions offered by several borrowers together with the interest rates they charge. You might end up getting a good-sized loan with a lower interest with just a little research.

An unsecured loan is a better option for quick money but if you’re patient enough the HELOC gets you more money for lower interest rates. Still, both are types of loans and while beneficial, they come with their risks which you have to keep in mind. With a good credit score, you can get an injection of cash for an emergency as soon as possible. HELOCs take time to process so aren’t the best options for such situations. Unfortunately, with a bad credit score, it’s impossible to get any of these loans. When you can get one, the interest rate charged is quite high.


Think through what you want the loan for and how fast you need it before you decide between unsecured loans and a HELOC. Both are beneficial but still come with risks associated with borrowed money. HELOCs get you more money with less interest. Unsecured loans get you less money with competitive interest among lenders but the processing time is less than that of a HELOC. Take a loan only if you need one and for a good reason. Remember, you have to pay it back in full and on time to avoid any issues later on.