Home equity loan vs. personal loan: What's the best option?

If you own a home and you want to borrow money for renovations, debt consolidation, or another large expense, you have several financing options. Home equity loans¹ and personal loans can get you the funding you need, but they work differently, and each comes with trade-offs.

A home equity loan uses your home as collateral, while a personal loan requires no collateral. Understanding these differences can help you decide which loan option is right for you.

Home equity loan vs. personal loan: Key differences

Let’s look at the most important differences between home equity loans and personal loans. The comparison table below highlights the main factors to consider when choosing between a home equity loan and a personal loan, using the most current data available as of February 2026.

What is a home equity loan?

A home equity loan allows you to borrow money using the equity you’ve built in your home as collateral. Equity is the difference between your home's current fair market value and the amount you owe on your mortgage. You can think of it as the amount of the home you actually own.

Using your equity to secure the loan reduces the lender's risk and can give you access to more favorable terms, such as a lower interest rate. However, it also means taking on a second mortgage, which could lead to foreclosure if you can't repay the loan.

With a home equity loan, you receive a lump sum and repay it over a fixed term with regular monthly payments. This differs from a home equity line of credit (HELOC), where you can borrow against a line of credit as needed over time. Rocket Mortgage currently doesn't offer HELOCs, but we want you to understand all your borrowing options.

Homeowners often use a home equity loan for renovations, debt consolidation, tuition costs, or medical bills. A home equity loan can get you up to 80% to 90% of your home’s value minus your existing mortgage balance, though exact requirements will vary by lender.

Home equity loan pros and cons

Here’s a rundown of some of the advantages and drawbacks of a home equity loan.

What is a personal loan?

A personal loan is a lump sum of money you borrow and repay with fixed monthly payments. The biggest difference is that personal loans are typically unsecured, which means they don’t require collateral. This means you won’t risk losing your home if you can’t keep up with your payments. It also makes personal loans accessible to a wider range of borrowers, including renters and homeowners with limited equity.

However, an unsecured personal loan poses more risk to lenders. As a result, they often come with higher interest rates than home equity loans - especially if your credit isn’t so great.

Because personal loans don't require collateral, the approval process is typically faster – a few days, rather than several weeks for a home equity loan. Personal loans also tend to have looser minimum credit requirements.

Personal loan pros and cons

Now, let’s examine some of the benefits and downsides of a personal loan.

When to choose a home equity loan

Since home equity loans tend to have lower rates and longer repayment terms, they can be an attractive option. If you use a home equity loan for your remodel or renovations, you might even be able to deduct the loan interest.

Here are a few reasons you might consider a home equity loan:

• You have plenty of home equity. If you've built substantial equity in your home – typically at least 15% - 20% – you can use it to borrow money at a lower interest rate. For example, if your home is worth $400,000 and you owe $200,000, you have $200,000 in equity and could potentially borrow up to $160,000 - $180,000.
• You want to borrow a large amount: Home equity loans allow you to borrow larger sums than personal loans, making them ideal for expensive home improvement projects like kitchen remodels, room additions, or major repairs.
• Your credit isn’t ideal: If your credit score isn’t the best but you have some equity, a home equity loan may be useful. While you may not be able to qualify for a great interest rate, you may still be able to borrow the funds you need with a home equity loan. Since these loans are secured, they’re seen as less of a risk to your lender.
• You’re not in a rush: The approval process takes longer than personal loans since lenders need to appraise your home and process a second mortgage. If you're planning a major project, this timeline is manageable.
• You want to renovate your home: Using a home equity loan for home improvements makes sense, especially since the interest may be tax-deductible. Plus, the improvements can increase your home's value, potentially building more equity over time.
• Your home value is rising: If home values in your area are increasing, you may be able to access more equity, and you're less likely to end up with an underwater mortgage. Rising home values provide a cushion of protection against market fluctuations.

When to choose a personal loan

Personal loans typically have slightly higher interest rates than home equity loans, but they also offer perks. The process of getting a personal loan is significantly faster than the process of getting a home equity loan – and you don't need a house with built-in equity to qualify.

Let’s look at a few reasons why you might want a personal loan:

• You don’t have much home equity: If you're a renter, a new homeowner, or don't have enough equity built up, you still can borrow money when you need it.
• You’re borrowing a small amount: For loan amounts under $30,000, personal loans make sense since you can avoid closing costs and appraisal fees associated with home equity loans. Why pay $2,000 in closing costs to borrow $15,000 when a personal loan has minimal fees?
• You need the money quickly: Personal loans can be approved and funded within days, making them ideal for emergencies like unexpected medical bills, urgent home repairs, or time-sensitive business opportunities. Some lenders even offer same-day funding for qualified borrowers.
• You don’t want to put your house at risk: If you're uncomfortable using your home as collateral or are concerned about your ability to make consistent payments, a personal loan lets you borrow without risking foreclosure. This peace of mind can be valuable, especially during uncertain economic times.
• You have excellent credit: Borrowers with excellent credit can qualify for lower interest rates on a personal loan, sometimes approaching home equity loan rates. If you fall into this category, the convenience and speed of a personal loan might outweigh the slightly higher rate.

How to decide between a home equity loan and a personal loan

If you’re wondering whether a home equity loan or personal loan is right for you, here are some steps to take to help you decide.

1. Assess your financial goals and needs: Start by identifying why you need the loan and how much you need to borrow. Large home improvement projects may warrant a home equity loan, while consolidating $10,000 in credit card debt might be better suited for a personal loan.
2. Consider your credit score, income, and home equity: You can receive a free copy of your credit report from each of the three credit bureaus by visiting AnnualCreditReport.com. You can calculate your equity by subtracting your mortgage balance from your home's current market value. If you have substantial equity and good credit, you may have more borrowing options.
3. Consider your repayment timeline:  Think about how quickly you can realistically repay the loan. If you need lower monthly payments and can afford to pay interest over a longer period, a home equity loan might work well. If you want to pay off debt quickly and can handle higher monthly payments, a personal loan's shorter term (1 - 7 years) could be better and will save you money on total interest paid.
4. Reflect on your risk tolerance: Consider your comfort level with using your home as collateral. If the thought of potentially losing your home keeps you up at night, or if your income is uncertain, a personal loan removes that risk. Consider your job stability, emergency savings, and overall financial cushion when making this decision.

Home equity loan and personal loan alternatives 

Aside from home equity loans and personal loans, there are other financing options to consider:

• Cash-out refinance:² With this option, you replace your existing mortgage with a new, larger loan and receive the difference in cash. That way, you’ll only have one mortgage payment to manage. Cash-out refinancing can be a good option if current refinance rates are lower than your existing rate.
• HELOC: This is similar to a home equity loan, but instead of receiving a lump sum, you get access to a revolving line of credit. You can borrow as needed during the draw period – typically 10 years – and only pay interest on what you use. This flexibility makes HELOCs ideal for ongoing projects or expenses with variable costs. Rocket Mortgage currently does not offer HELOCs.
• Credit card: If you need to consolidate existing credit card debt, consider a balance transfer credit card with a zero percent introductory annual percentage rate (APR) – typically lasting 6 – 24 months. This can be a good short-term solution for paying off high-interest credit card debt without accruing additional interest during the promotional period. Just be sure to pay off the balance before the intro period ends to avoid high regular APRs.

The bottom line: Is a home equity loan or personal loan right for you?

Choosing between a home equity loan and a personal loan depends on your financial situation, how much you need to borrow, and what you'll use the funds for. Home equity loans offer lower interest rates and larger loan amounts, but require you to use your home as collateral and go through a more extensive approval process. Personal loans provide faster access to funds and don't put your home at risk, but they typically come with higher interest rates and smaller loan amounts.

If you’ve decided a Home Equity Loan is right for you, you can start the process with Rocket Mortgage today.

¹ Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 11/19/25 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Ameriprise products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher‑priced loans in the State of New York are subject to additional regulatory requirements. Additional restrictions apply. This is not a commitment to lend.

² Refinancing may increase finance charges over the life of the loan.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.

How to decide between a home equity loan and a personal loan

If you’re wondering whether a home equity loan or personal loan is right for you, here are some steps to take to help you decide.

1. Assess your financial goals and needs: Start by identifying why you need the loan and how much you need to borrow. Large home improvement projects may warrant a home equity loan, while consolidating $10,000 in credit card debt might be better suited for a personal loan.
2. Consider your credit score, income, and home equity: You can receive a free copy of your credit report from each of the three credit bureaus by visiting AnnualCreditReport.com. You can calculate your equity by subtracting your mortgage balance from your home's current market value. If you have substantial equity and good credit, you may have more borrowing options.
3. Consider your repayment timeline:  Think about how quickly you can realistically repay the loan. If you need lower monthly payments and can afford to pay interest over a longer period, a home equity loan might work well. If you want to pay off debt quickly and can handle higher monthly payments, a personal loan's shorter term (1 - 7 years) could be better and will save you money on total interest paid.
4. Reflect on your risk tolerance: Consider your comfort level with using your home as collateral. If the thought of potentially losing your home keeps you up at night, or if your income is uncertain, a personal loan removes that risk. Consider your job stability, emergency savings, and overall financial cushion when making this decision.

When to choose a personal loan

Personal loans typically have slightly higher interest rates than home equity loans, but they also offer perks. The process of getting a personal loan is significantly faster than the process of getting a home equity loan – and you don't need a house with built-in equity to qualify.

Let’s look at a few reasons why you might want a personal loan:

• You don’t have much home equity: If you're a renter, a new homeowner, or don't have enough equity built up, you still can borrow money when you need it.
• You’re borrowing a small amount: For loan amounts under $30,000, personal loans make sense since you can avoid closing costs and appraisal fees associated with home equity loans. Why pay $2,000 in closing costs to borrow $15,000 when a personal loan has minimal fees?
• You need the money quickly: Personal loans can be approved and funded within days, making them ideal for emergencies like unexpected medical bills, urgent home repairs, or time-sensitive business opportunities. Some lenders even offer same-day funding for qualified borrowers.
• You don’t want to put your house at risk: If you're uncomfortable using your home as collateral or are concerned about your ability to make consistent payments, a personal loan lets you borrow without risking foreclosure. This peace of mind can be valuable, especially during uncertain economic times.
• You have excellent credit: Borrowers with excellent credit can qualify for lower interest rates on a personal loan, sometimes approaching home equity loan rates. If you fall into this category, the convenience and speed of a personal loan might outweigh the slightly higher rate.