How Does Home Equity Financing Compare With Personal Loans?

By Michael Pressman

TD Residential Lending Product Manager

When you're deciding between a home equity loan or line of credit and an unsecured personal loan, consider how much cash you need, and how you plan to use the funds. With a personal loan, you'll be provided with funds up front in a single lump sum—usually $2,000 to $50,000. This is an important consideration as some expenses, such as a vehicle purchase can exceed this amount. Both home equity financing options and personal loans can be used to pay for most anything but it's worth noting that personal loans will typically carry higher interest rates. This is primarily because the loan is not being secured against any collateral (like your home). However, this may be appealing for some borrowers, especially those who do not own their home.

Home equity loans and lines of credit financing pros and cons

  • Pros

    • Large loans capable of covering most expenses
    • Variable or fixed interest rates usually lower than most credit cards
    • Simplified access to funds depending on which option you choose
  • Cons

    • Can take upwards of 30 days to receive funds
    • Typically there are closing costs and fees associated with home equity financing
    • Requires home as collateral

Personal loans financing pros and cons

  • Pros

    • Does not require home for collateral
    • Fixed interest rate, offering consistent monthly payments
    • Typically offers quick access to funds
  • Cons

    • Wide range of interest rates determined by your creditworthiness
    • Size of the loan you're approved for might not cover all expenses
    • Many lenders charge an origination fee—TD Bank Personal Loans do not

When to choose home equity financing

Home equity financing may be the best option if you'll need access to more than $50,000 or are financing a project that has unknown costs. Coupled with their low, variable or fixed rates, home equity financing can prove to be a great option. Keep in mind that as you'll be borrowing against the equity in your home, homeownership is required and at times there may be closing costs and fees with this type of financing.

When to choose a personal loan

Personal loans may be the best option to help cover an unexpected expense if you are not a homeowner with available equity. Also, you can usually get quick approval and funding from most lenders within just a few days. No home ownership and speed are two reasons why personal loans have an advantage over home equity financing – especially for one-time expenses.

Explore TD financing solutions

  • Help me choose a loan

    Explore loan options based on your answers to a few easy questions

  • TD Home Equity Loans

    Tackle projects with a predictable monthly payment

  • TD Home Equity Line of Credit

    Turn your home's equity into spending power—plus get a rate discount with your TD Checking Account

  • TD Bank Personal Loans

    With a TD Fit Loan, you don't need to use your home or other assets to borrow money

Loans subject to credit approval. Equal Housing Lender 

This article is based on information available in July 2021. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.