When you decide to look out for different loan options, the two main types which would mostly pop up to confuse you are the home equity loan and personal loan. However, you need to weigh down their attributes, pros, and cons to be sure that you end up getting the one which is best suited to your specific needs and demands.
Here are a few key points mentioned to help you compare home equity loan and personal loan for home improvement.
- Process & Fees
Home equity loan takes time to get approved because it involves a lot of different factors which are required to decide the amount of money you can borrow from your lender. You also get the amount of your home future value checked to see the equity you have. It might also involve other fees and charges which you should know about by talking in detail with your lender.
On the other hand, personal loans are quite straightforward, and the overall process would take less of your time. There are mainly two deciding factors i.e. your earning power and credit history which would help decide the amount you would get for a loan. Also, the interest rates would vary which might be decided by your lender.
The inability to pay the home equity loan within the given time period would result in the loss of your home.
However, the risks involved in a personal loan might be different from ruining your credit history to higher interest rates.
For different situations, different options for home improvement loans would be suitable. For instance, if you have a significant appraisal value of your home, you can use it to get a home equity loan. It would help you get a huge amount of money for your project. Also, the interest rates would be lower which would enable you to repay faster.
However, if the situation is different i.e. either you are a new homeowner or you want an easy or fast process, you can opt for short term personal loans similar to SafetyNet Credit for your home improvement project.
- Secured VS Unsecured
A home equity loan is a secured loan because it takes your home as a guarantee that you would repay what you owe to your lender.
On the contrary, most of the personal loans are unsecured. However, it doesn’t mean that you won’t have to face the consequences if you don’t repay your personal loan within the limited time period. The lender can simply file a case against you which would ruin your credit history.
The limit for a home equity loan can be defined by the loan-to-value ratio which can’t exceed to 90%. There are different ways of home equity loans i.e. home equity line of credit, second mortgage, and cash-out mortgage refinances while each one incorporates the CLTV ratio.
For personal loans, the limits are defined by either debt-to-income ratio or maximum loan limit of the individual lender.