When looking for extra money today, there are two popular options many consumers consider – a home equity line of credit (HELOC) and a personal loan. From home improvements to debt consolidation, there are loans available to help with your financial needs, which is why many people will look at using the equity in their home and apply for a HELOC or they will consider a personal loan. HELOC or personal loan? Let’s explore which one is right for you.
A Home Equity Line of Credit (HELOC)
First and foremost, you need a home for which you have built some equity to qualify for a HELOC. Typically, you will need to have more than 20% equity in your home to apply for a HELOC. Depending on how much you put down when you purchased your home, how much you have paid down your mortgage and how much your home is valued at today, will help you determine how much equity you have built in your home. In most cases, you will need to have lived in your home from three to seven years to have built up sufficient equity.
Once you have built the equity needed in your home to apply for a HELOC, you will be given a line-of-credit amount based your credit history, equity and your ability to afford the payment. Your HELOC will give you the opportunity to borrow only the money you need, similar to a credit card. However, a HELOC will usually offer a variable interest rate that is generally lower than credit card rates. Your payments will vary depending on the amount used. Whether you want to consolidate debt or make renovations to your house, a HELOC is a great option.
A HELOC functions much like a credit card, with a maximum amount that you can use over a period of time, and you can borrow against that amount as you need money. As you pay the loan down, that money becomes available again.
A HELOC is most ideal when you have borrowing needs that can vary or when the total cost is unclear, especially when remodeling your home. The money you need for remodeling may extend over a period of time, whereas if you’re using your HELOC for a specific repair, emergency or debt collection, you can access the full amount needed as well. It’s your personal line of credit.
A Personal Loan
First and foremost, when you’re considering a personal loan, you must have the means to pay the loan back to your bank. Therefore, you will want to be prepared to show your employment, your current income and any debts you have outstanding.
Obviously, a personal loan offers you many more options when you don’t own your home, or you have limited equity. There are other reasons many consumers may want to apply for a personal loan…and some of those reasons might just be too personal.
Oftentimes consumers will use credit card(s) to borrow money. Whatever the reason, it’s always better to consider a personal loan than to incur expensive credit card debt. A personal loan might actually offer more opportunity to keep the loan amount in check and also offer a lower interest rate.
Popular Reasons to Borrow Money Today
Whatever your reasons for wanting to borrow money with a HELOC or a personal loan, here are some of the most popular reasons people today are borrowing money.
- Home Improvements – People are spending more time at home and finally getting to the improvements they have always wanted to make. Also many families are needing home office and schooling space. And bigger kitchens are always needed when more time is spent cooking and eating at home.
- Debt Consolidation – When job security and unforeseen bills start to cause anxiety, it’s often a good time to think about consolidating all debt. Paying one bill, with one interest rate, can be calming and much easier on your budget and psyche.
- Emergencies – Sometimes life just hands us some unexpected emergency we need to deal with whether it’s our health, job or housing…we just need to deal with it and many times a loan can provide relief.
- Personal – We never know what people are going through especially today. Death, sickness, job loss, accidents, divorce, children’s need and the reasons go on…because in reality it is life.
If you are looking at a HELOC or considering a personal loan, Chelsea State Bank offers both loan types as well as others, and will help you explore which loan is right for you, your budget and your lifestyle.
Simply call us at 734.475.4210 or visit us online to begin. We are here to help you learn more about these loans and any of the other loans we offer to help make life a little easier today.
Loans are subject to credit review and approval.