Quick answer
A personal loan is often the better option when you need a moderate amount quickly, want predictable monthly payments, or prefer not to put your home at risk. Home‑secured options (home equity loans or HELOCs) generally offer lower rates for large, long-term projects, but they add the risk of foreclosure if you default (Consumer Financial Protection Bureau).

When a personal loan is usually the better choice

  • You don’t have enough home equity or don’t want to use it. If your home’s value or remaining mortgage balance limits borrowing options, an unsecured personal loan avoids that barrier.
  • You need money quickly or want a simple online application and fast funding. Many lenders approve and fund personal loans in days.
  • You want fixed monthly payments and a known payoff date. Personal loans typically run 2–7 years with fixed rates, making budgeting simpler.
  • You’re consolidating high‑interest unsecured debt (credit cards, medical bills) and want to stop variable interest or multiple due dates. See our guide on debt consolidation strategies for details: Debt Consolidation Strategies.
  • You want to avoid putting your home at risk. Home‑secured borrowing uses your house as collateral; a personal loan does not.

When tapping home equity may be better

  • You need a large sum and plan to pay it off over many years (major remodels, long-term projects). Home equity loans or HELOCs often have lower rates for larger amounts.
  • You can comfortably manage variable interest (HELOC) or accept a longer term. Lower monthly cost can fit a stretched budget but increases total interest paid.
  • You expect tax-deductible interest for qualifying home improvements—confirm rules with a tax advisor and the IRS.

How to compare costs and risk (practical steps)

  1. Gather offers: get APRs, term length, monthly payment, and all fees for both personal loans and home equity options. Lenders must disclose costs; review them carefully (Consumer Financial Protection Bureau).
  2. Compare monthly payments and total cost: a shorter personal loan term usually raises monthly payments but cuts total interest. A longer home‑equity term lowers monthly payments but can increase lifetime interest.
  3. Factor in fees: home equity loans and HELOCs often have closing costs or appraisal fees; personal loans may charge origination fees.
  4. Consider non‑financial risks: with home‑secured debt, default can lead to foreclosure. Weigh this heavily if income is uncertain.

Illustrative example (simplified)

  • Scenario: You need $20,000. A 5‑year personal loan will typically mean higher monthly payments but no collateral and predictable payoff. A 10‑year home equity loan could lower monthly payments but uses your home as security and likely increases total interest. Run both scenarios through the lender’s disclosures or a loan calculator before deciding.

Real-world tips I use with clients

  • Prequalify before you apply to see likely rates without a hard credit hit.
  • If consolidating debt, commit the cash‑flow discipline to avoid reloading credit cards after a successful consolidation. See our article on personal loan use cases for practical examples: Personal Loan Use Cases.
  • If you’re considering a HELOC, understand draw and repayment periods—HELOCs can switch to interest‑only draws then higher principal-plus-interest payments. Read guidance on using HELOCs safely: Using HELOCs Safely.

Common mistakes to avoid

  • Comparing only interest rates and ignoring term length, fees, and tax implications.
  • Borrowing the maximum available equity because it’s offered—keep a cushion for emergencies.
  • Overlooking the foreclosure risk tied to home‑secured borrowing.

Sources and further reading

Professional disclaimer
This article is educational and does not replace personalized financial advice. Rates, fees, and eligibility vary by lender and borrower; consult a licensed financial advisor or tax professional for decisions that affect your home or tax situation.