If you are looking for a good way to finance a project or need some quick cash, you have two main options: you can consider a personal loan or a home equity loan. But before you sign those loan application forms, you need to understand what each of these loans offers, including their advantages and disadvantages.
Let’s break it down for you.
Personal loans are designed to cover a range of financial needs, including emergencies, home improvements, medical expenses, and debt consolidation. The best thing about these loans is that you can acquire them without providing collateral such as a car or house.
According to the Federal Reserve, the loan interest rates can vary depending on factors such as home state, loan amount, and credit score. The interest rates are, however, higher than normal, considering that you are taking out a loan without collateral. The amount you can be offered for the loan could range between $1,000 (or less) and $100,000.
The application of personal loans is usually straightforward. You only need to fill personal information and provide financial documents that indicate your ability to afford the payments and depending on the lender; you can have the amount from 24hrs to a week.
Home Equity Loans
With this loan, the lender has to assess the equity in your property and do the calculation to arrive at a specific amount they can lend you based on loan-to-value rate.
When doing the calculations lenders look at the current market value of your home, subtracting any liens such as mortgage against your property. For instance, if you bought your home for $100,000 but still owe $50,000 on the property, your equity would be $50,000.
The interest rates of home equity loan are usually lower simply because you are using your home as collateral or security. However, to access it, you may need to wait longer, usually one week to a month to have it processed.
As you’ve seen, there are a set of advantages that come with each of the two loans: personal loan and home equity loan. If you need quick money that you can get without security, a personal loan would be a great idea. If you want to access a large sum of money and have a home to put as collateral, you may want to consider a home equity loan.