HELOC vs. personal line of credit: which is better?
Both let you draw, repay and draw again. The difference is what backs the line, and that drives the rate, the limit, the speed and the risk.
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Which is better: a HELOC or a personal line of credit?
A HELOC is usually better for larger amounts and lower cost: it's secured by your home, so rates are typically lower and limits higher. A personal line of credit is unsecured, so it usually opens faster with few or no closing costs and puts no lien on your home, but it typically charges a higher rate and has a smaller limit.
On this page
Side by side
| HELOC | Personal line of credit | |
|---|---|---|
| Backed by | Your home (a lien is recorded) | Nothing; unsecured |
| Typical rate | Variable, prime plus a margin; example 7.75% APR | Usually variable and typically higher than a HELOC |
| Typical limit | Based on home equity, often up to 80%–85% combined loan-to-value | Based on income and credit; usually smaller |
| Speed | Often a few weeks | Often days |
| Upfront costs | May include appraisal, title and recording, or none if the lender covers them | Often none; some charge an annual fee |
| Draw period | Often 10 years, then 20 years of repayment | Varies; some renew yearly |
| If you can't pay | Risk of foreclosure | Collections and credit damage; no lien on the home |
Use a free calculator, or get your HELOC rate from Shawn.
Secured vs. unsecured: why it matters
A HELOC is a lien on your home, usually in second position behind your mortgage. Because the lender can look to the home if you stop paying, it takes less risk and can charge less. A personal line of credit from a bank or credit union has no collateral. The lender relies only on your income and credit history, so it prices that risk into a higher rate and keeps the limit smaller.
The trade-off runs the other way for you. With a HELOC, missed payments can ultimately put your home at risk. With an unsecured line, missed payments damage your credit and can lead to collections or a lawsuit, but there's no lien to foreclose on.
Rates and limits
Most HELOCs are variable: prime (currently 7.00%) plus a margin based on your credit score, combined loan-to-value and line size. Typical HELOC APRs for strong credit run around 7.25%–8.75%; see HELOC rates today for the full table. Many lenders also let you lock part of a HELOC at a fixed rate.
Personal lines of credit are also usually variable, often tied to prime, but with a larger margin because they're unsecured. Rates vary widely by lender and credit profile, so compare actual offers rather than averages.
Limits differ even more. A HELOC limit comes from your equity: home value times the lender's maximum CLTV, minus what you owe. On a $500,000 home with $300,000 owed and an 85% CLTV limit, that's $500,000 × 0.85 − $300,000 = $125,000. A personal line is sized to your income and credit and is usually much smaller. See how much can I borrow to estimate your own HELOC limit.
Speed and costs
A personal line of credit can often be approved and opened within days, with no appraisal or title work. A HELOC needs a property valuation, title search and recorded lien, so it often takes a few weeks; see how long a HELOC takes. HELOC closing costs vary: some lenders cover them (often with an early-closure fee if you close the line within a few years), others charge appraisal and recording fees. Details in HELOC closing costs.
On a primary residence, federal law gives you three business days after signing to cancel a HELOC. That's a useful protection, but it also adds to the time before funds are available.
Example: $25,000 over three years
These are assumptions for illustration only, not quotes from any lender. Assume you borrow $25,000 and repay it in equal monthly payments over 36 months, with rates held steady:
- HELOC at an assumed 8%: about $783.41 a month, about $3,203 in total interest. Assume $500 in upfront costs, for about $3,703 all-in.
- Personal line of credit at an assumed 14%: about $854.44 a month, about $5,760 in total interest, with no upfront costs assumed.
Under these assumptions, the HELOC costs about $71 less a month and about $2,057 less overall after its upfront costs. The gap shrinks on smaller balances or shorter payoffs, because upfront costs take a bigger share. On a few thousand dollars repaid within months, a personal line can come out ahead. Run your own numbers in the HELOC payment calculator.
Which one fits you
- Choose a HELOC for larger amounts, longer payoffs, or ongoing costs like a renovation, when you have equity and want the lower rate.
- Choose a personal line of credit for smaller amounts you'll repay quickly, when you need money in days, when you don't have enough equity, or when you don't want a lien on your home.
- Consider a lump-sum loan instead if you need one fixed amount: compare a HELOC vs. a personal loan.
Questions people ask
Is a HELOC cheaper than a personal line of credit?
Usually. A HELOC is typically cheaper than a personal line of credit because it's secured by your home. But HELOCs can have upfront costs, so on a small amount repaid quickly, a personal line can cost less overall.
Can I get a personal line of credit without good credit?
Possibly, but it's harder. A personal line of credit lender has only your credit and income to go on. If you have equity, a HELOC can be easier to qualify for with less-than-perfect credit, though rates will be higher.
Does a personal line of credit put a lien on my house?
No. A personal line of credit is unsecured. A HELOC does record a lien on your home until the line is closed and released.
Which is faster, a HELOC or a personal line of credit?
A personal line of credit is usually faster, often days. A HELOC needs a valuation and title work and often takes a few weeks.
Is HELOC interest tax deductible but personal line of credit interest not?
Under current federal law, HELOC interest can be deductible if you itemize and use the money to buy, build or substantially improve the home securing it. Interest on a personal line used for personal expenses generally isn't. See is HELOC interest tax deductible?
Your home secures a HELOC, and variable rates can change. This page is general information, not an offer to lend. To see your own numbers, get your HELOC rate from Shawn.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau
- Publication 936, Home Mortgage Interest Deduction · Internal Revenue Service
- Regulation Z §1026.40: Requirements for home equity plans · Consumer Financial Protection Bureau
- Regulation Z §1026.15: Right of rescission · Consumer Financial Protection Bureau
- Find a HUD-approved housing counselor · Consumer Financial Protection Bureau