Home Equity Vs. Personal Loan: Questions To Ask To Help You Decide
What are your plans?
There are many reasons to take out a loan, but what you need the money for can help you decide which loan is better. If you’re considering doing some home renovations, you might be able to deduct the interest on the loan with a home equity loan.
But if you don’t own a home or want to consolidate your debt, a personal loan may be a better solution for your needs. The timeliness of your plans could also affect which loan is a better fit for you, which we will discuss later.
How is your credit situation?
If you don’t know what your credit report looks like, be sure to check it before deciding on a loan. If you have good to excellent credit, you may qualify for a personal loan and take advantage of lower fees. However, if you have bad credit, a personal loan may not be an option.
If you own your own home and have equity, a home equity loan may be a better choice for you. Keep in mind that if you apply for a home equity loan and you have shaky credit, you may not qualify for better interest rates.
How badly do you need the money?
If the time it takes to get a loan is a major factor, personal loan is the clear winner. The process of a home equity loan involves determining the value of your home, which adds a few extra steps that a personal loan doesn’t require. A home equity loan requires an application, underwriting, and possibly an appraisal before the loan is approved.
So if you are not in a hurry and want to renovate your home in the future, a home equity loan is still a good option. However, if you need money for an emergency, a personal loan is a better option. With a personal loan, it can typically take a few days or a week for the borrower to receive the money, while with a home equity loan, it can take up to a month.
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