Why this matters

When you need emergency cash, the choice between a personal loan and a HELOC changes how fast you get money, what you pay in interest, and how much risk you accept. In my practice advising clients, I’ve seen the wrong choice increase monthly stress—especially when homeowners treated a HELOC like a credit card without planning for rate changes.

Quick comparison

  • Security: Personal loans are usually unsecured; HELOCs are secured by your home (risk of foreclosure if you default) (Consumer Financial Protection Bureau).
  • Rate type: Personal loans generally have fixed rates; HELOCs most often have variable rates tied to an index.
  • Structure: Personal loans give a one-time lump sum repaid over a set term. HELOCs are revolving during a draw period and then require repayment, which can change payment amounts.
  • Speed: Personal loans often fund in days to a week; HELOCs commonly require an appraisal and more paperwork, taking weeks.
  • Fees & closing costs: HELOCs frequently have appraisal, title, or closing costs; personal loans usually have origination fees but fewer closing costs.
  • Tax treatment: Interest on HELOCs is only potentially deductible when used to buy, build, or substantially improve the secured home, per IRS rules. Interest on a personal loan is generally not deductible for personal expenses (IRS).

When a personal loan is the better emergency option

  • You don’t own a home or don’t want to use your home as collateral.
  • You need a predictable, fixed monthly payment to budget.
  • You want faster funding with less documentation.
  • You prefer being insulated from rising short-term interest rates.

When a HELOC is the better emergency option

  • You’re a homeowner with meaningful equity and comfortable using the home as collateral.
  • You expect to need funds repeatedly or unpredictably (HELOC acts like a credit line).
  • You plan to pay down principal quickly or use the line for home improvements that may qualify the interest for tax deduction.

Practical examples (illustrative)

  • Short emergency (car repair, urgent medical bill): a personal loan can provide a predictable repayment schedule and faster funding.
  • Ongoing needs (staged home repairs, temporary cash flow): a HELOC can let you draw as needed without reapplying each time.

Decision checklist: run this before applying

  1. Calculate the total cost: compare APR on a personal loan vs current variable HELOC rate plus fees.
  2. Check timing: how quickly do you need funds? Ask lenders for average funding timelines.
  3. Assess repayment ability: can you handle rising payments if HELOC rates increase?
  4. Consider tax implications: will proceeds be used for home improvements that meet IRS deduction rules? (IRS)
  5. Factor in closing costs and appraisal fees for HELOCs.
  6. Protect liquidity: avoid exhausting emergency savings without an exit plan.

Application & exit tips

  • Prequalify with multiple lenders to get soft-rate checks and compare offers without hard inquiries.
  • For HELOCs, confirm the draw period, repayment terms, and any rate-floor or cap features.
  • Create an exit strategy: if you take a HELOC for short-term needs, plan to convert to a fixed-rate loan or repay principal quickly to avoid large payments later. See our guide on Emergency Personal Loans: Creating an Exit Strategy Before Borrowing for tactics to limit cost and risk.
  • If you’re thinking of using home equity for emergency cash, read Using a HELOC for Emergency Expenses: Risks and Alternatives to weigh common pitfalls and safe practices.

Red flags to avoid

  • Using a HELOC to cover ongoing living expenses without a repayment plan.
  • Assuming HELOC rates won’t rise; variable rates can increase payments.
  • Ignoring closing costs and prepayment penalties.

Authoritative sources and further reading

  • Consumer Financial Protection Bureau: guides on HELOCs and home equity borrowing (Consumer Financial Protection Bureau).
  • Internal Revenue Service: rules on mortgage and home equity interest deductions (IRS).

Professional disclaimer

This article is educational only and not personalized financial advice. Talk to a certified financial planner or mortgage professional before borrowing. In my practice I recommend running the checklist above and getting firm loan terms in writing before accepting an offer.