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Home equity line of credit (HELOC) or secured personal loan: What’s better for me?

Looking for a home equity line of credit? A secured personal loan might be a better alternative depending on your situation.

If you’re a homeowner looking to borrow money, you might be wondering what the difference is between a home equity line of credit (HELOC) and a secured personal loan (or home equity loan). Both HELOCs and secured personal loans allow homeowners to use the equity in their home to access more money at lower interest rates. Whichever you choose will depend on your needs and lifestyle.

First, let’s take a look at how the two products are different:

How does a home equity line of credit work?

A HELOC is a type of revolving credit, which means you can continue to borrow money from the line of credit even after you pay down the balance (similar to the way a credit card works). The money on your home equity line of credit is always available to you, and you can withdraw small amounts of it over time as you need to, paying it back through monthly payments. Unlike an unsecured (or “personal”) line of credit, a home equity line of credit is secured against the value of your home, allowing you to access lower interest rates.

You may want to consider a home equity line of credit if:

  • You don’t want to apply for a new loan each time you borrow money
  • You have a high credit score and a positive payment history on past debts
  • You like the flexibility of paying down debt on your own schedule (and manage it well)

Something to consider:

HELOCs are typically offered to prime customers by banks and credit unions. As these institutions have stricter lending criteria, if you’re in the fair to good credit score range, you may not qualify for a home equity line of credit.  

How does a secured personal loan (or “home equity loan”) work?

A secured personal loan is an installment loan, meaning you receive the money you borrow up front and then repay the loan through a set number of payments (“installments”). Generally, the interest rate and payment amount is fixed for the life of your loan, offering a predictable and manageable repayment schedule.

Similar to lines of credit, personal loans can be secured or unsecured. If you’re a homeowner, you likely want to secure your loan to take advantage of lower interest rates, larger loan amounts and longer repayment terms.

You may want to consider a secured personal loan if:

  • You want a lump sum payment to cover the cost of a home renovation, repair, furniture purchase etc.
  • You’ve missed debt payments in the past and are looking to rebuild your credit
  • You find it easier to manage a set repayment schedule with fixed payments

What are the main differences between a HELOC and a secured personal loan?

The main difference between a HELOC and secured personal loan is that a HELOC is considered revolving credit whereas secured personal loans are not. While revolving credit offers a convenient solution to borrowing money (since it’s always available to you), some people benefit from the structured repayment schedule that a secured personal loan offers.

HELOCs only require a minimum payment each month, so if you consistently make the minimum payment, interest can quickly accrue and cause you to be in more debt than you originally anticipated. If you think this could become an issue for you, you may want to consider a secured personal loan for your borrowing needs.

This chart summarizes the differences between a HELOC and a secured personal loan:


Secured personal loan/Home equity loan

  • Revolving credit
  • Continuous access to money
  • You have the ability to take out small amounts of money as you need
  • There is no set schedule for when the balance will be paid off; only minimum payments are required
  • Installment loan
  • Immediate access to the full loan amount
  • Once the loan is paid back you cannot borrow it again from the same loan
  • You benefit from a more manageable repayment schedule and an end date when your debt will be paid off

How can you rebuild your credit with a secured personal loan?

If you’re looking to rebuild your credit, a secured personal loan can help. Since secured personal loans offer a structured repayment schedule, most people find it easy to stay on track with loan payments (especially when compared against revolving credit). Over time, consistent on-time loan payments will reflect positively on your borrowing history, and can impact your credit score.

A lot of people choose to consolidate their debt (specifically credit card debt) with a secured personal loan. In this case, a secured personal loan is a better option than a HELOC since you likely benefit from a more structured repayment plan. By consolidating your debt with a secured personal loan, you end up paying down your debt faster (usually at a lower rate) and rebuilding your credit at the same time. It’s a win-win.

Interested in a secured personal loan? Here’s how it works at Fairstone:

  1. Start with a free loan quote: Simply enter a few details about yourself so we can find the right loan for you.
  2. Receive your decision in minutes: We’ll tell you how much money you could qualify for, and what your payments might be (this quote will be for an unsecured loan).
  3. Let us know you want to secure your loan: A Lending Specialist will be in touch after your application. Since your quote will be for an unsecured loan, let us know you’re interested in securing your loan, and we’ll be happy to update your quote.
  4. Receive your money: Finalize your loan application in-branch, and receive your money quickly.


Looking for more? Check out these resources to learn more about Fairstone loans:

Loan terms range from 6-120 months. Maximum APR on personal loans is 39.99%. On a $5,000 unsecured personal loan the maximum total cost of borrowing would be $6,622.