Personal Loan vs. Home Equity Loan: Which Rate Is Lower
Home equity loan rates average 7.54% vs. 10%+ for personal loans in June 2026. Compare both on rate, risk, and real total cost before you apply.
You need to borrow a meaningful sum — home improvements, debt consolidation, a large one-time expense — and you want the lowest possible rate. Two options are likely on your shortlist: a personal loan (unsecured, fast to close) and a home equity loan (secured by your property, with a meaningfully lower rate in most cases).
The rate difference is real and worth calculating precisely. So is the difference in risk. Here's an honest, number-first comparison so you can decide which option makes financial sense for your specific situation.
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The Rate Gap, in Numbers
Home equity loans are secured by your property, which dramatically lowers lender risk — and rates reflect that. As of June 2026, average home equity loan rates sit around 7.5%, according to published market data tracked by the Federal Reserve. Personal loans for creditworthy borrowers typically start around 9% and climb quickly as credit scores drop.
The gap between a home equity loan and a personal loan widens as your credit score falls. For a borrower at 740, the spread might be 1–2 percentage points. For a borrower at 660, it can be 10+ points. At lower credit tiers, the home equity loan rate advantage becomes the dominant factor in any cost comparison.
What That Rate Gap Costs in Real Dollars
That said, this comparison assumes the same 10-year term. Personal loans often cap at 5–7 years. A shorter-term personal loan at a higher rate can sometimes cost less in total interest than a longer-term home equity loan, because you are repaying principal faster. Run the full amortization at your actual intended payoff timeline before deciding purely on headline rate.
Why Home Equity Loans Carry Lower Rates
A home equity loan is secured debt. If payments stop, the lender has the right to initiate foreclosure to recover the balance. That security dramatically lowers lender risk — and lower risk translates directly into lower rates.
A personal loan is unsecured. There is no collateral. If a borrower defaults, the lender pursues collection action but cannot automatically seize an asset. This higher risk is priced into the rate from the start.
The CFPB's overview of home equity loans explains what lenders typically require, including minimum equity stakes and the appraisal process used to establish your home's current value.
Tax Considerations
Interest on a home equity loan may be tax-deductible when the proceeds are used to "buy, build, or substantially improve" the home securing the loan, per IRS guidelines. When funds are used for other purposes — debt consolidation, medical bills, or general expenses — the deduction typically does not apply.
Personal loan interest is generally not deductible for individual borrowers, regardless of how the funds are used.
If you are borrowing for a qualifying home improvement, the after-tax cost of a home equity loan is even lower than the stated rate suggests. If the funds are for something else, the tax advantage disappears and the comparison becomes purely about rate, risk, and fees. Consult a tax professional before treating deductibility as a given — it depends on your tax bracket and whether you itemize.
When the Rate Advantage Disappears
A home equity loan's headline rate is lower — but not always enough lower to make it the cheaper loan overall. Three scenarios narrow or eliminate the advantage:
Closing costs. Home equity loans carry closing costs: appraisal, title search, origination, and recording fees. These typically run 2–5% of the loan amount. On $30,000, that is $600–$1,500 added to your effective borrowing cost upfront. Personal loans may charge an origination fee of 1–8%, but many charge nothing. Factor total fees — not just rate — into your calculation.
Shorter repayment timelines. If you can comfortably repay in three to five years, a personal loan's higher monthly payment clears the debt faster and often results in less total interest than a 10-year home equity loan at a lower rate. Run both scenarios at your actual intended payoff date before deciding.
Concentrated home equity risk. A housing market decline or job loss while carrying secured debt against your home is a materially different risk profile than carrying an unsecured personal loan. The rate savings are real; so is the downside if circumstances change.
Direct Comparison at $30,000 Borrowed
| Option | APR | Term | Monthly Payment | Total Interest |
|---|---|---|---|---|
| Home equity loan | 7.5% | 10 years | ~$357 | ~$12,800 |
| Home equity loan | 7.5% | 5 years | ~$602 | ~$6,100 |
| Personal loan | 11% | 5 years | ~$652 | ~$9,100 |
| Personal loan | 11% | 7 years | ~$498 | ~$11,800 |
Illustrative figures based on indicative rate midpoints. Actual rates vary by lender and borrower profile.
At a 5-year term, the home equity loan saves roughly $3,000 in interest on $30,000. At a 10-year term and higher rate, the gap widens to nearly $7,000 — but the personal loan would almost never extend to 10 years, making the shorter-term comparison more realistic for most borrowers.
When to Choose a Home Equity Loan
- You are borrowing $30,000 or more and want the lowest possible rate
- Your home has substantial equity — lenders typically require 15–20% equity remaining after the loan closes
- You have stable income and can absorb the 2–4 week closing timeline
- The proceeds are for home improvement, where the rate advantage compounds with potential tax deductibility
- You have checked how closing costs affect your break-even and the math works at your repayment timeline
When to Choose a Personal Loan
- You can repay in 3–5 years, limiting total interest exposure
- You do not want to put your home at risk for an unsecured expense
- You need funds quickly — personal loans close in 1–3 days versus 2–4 weeks for home equity loans
- You are borrowing $15,000 or less, where closing costs consume a disproportionate share of the rate advantage
- You want to check rates without committing — pre-qualification requires only a soft credit pull
What to Do Next
Start by comparing personal loan rates at /get-started — pre-qualification is free and does not affect your credit score. If a home equity loan is on the table, get an estimated rate from a lender before ordering a full appraisal.
Run both options at your actual loan amount and your intended payoff timeline — not just the headline rate. The lower-rate loan is not always the lower-cost loan when fees and term length are factored in. But when the math works out, the home equity loan rate advantage is one of the clearest savings available to homeowners.