8 oct 2026 ·
Advertiser: Rates and rules below come from named, independent sources, and we explain our method at the end of the article.
If you’re planning a kitchen remodel, a new roof or a bathroom update, two of the most common ways to pay are a personal loan and a home equity line of credit (HELOC). Both can cover a five-figure project. But they work very differently, and the cheaper one on paper isn’t always the better choice.
A HELOC usually has a much lower interest rate, because your home secures the debt. A personal loan costs more, but it’s faster, has a fixed payment, and doesn’t put your house on the line.
Below we compare both, using average rates and tax rules published as of October 8, 2026.
Quick answer
- A HELOC is usually cheaper for large or long projects, especially if you have plenty of equity and can handle a payment that may change.
- A personal loan is usually better for smaller projects, for urgent repairs, or if you have little equity or don’t want your home used as collateral.
- Rule of thumb: the bigger the project and the longer you need to repay, the more a HELOC’s lower rate saves you. The smaller and faster the project, the more a personal loan’s speed and simplicity win.
Personal loan vs HELOC at a glance
The HELOC wins on rate; the personal loan wins on speed, predictability and risk. Averages below were checked on October 8, 2026.
| Feature | Personal loan | HELOC |
|---|---|---|
| Average rate | 19.47% APR overall; 15.16% for excellent credit (720+) | 7.29% (national average, week of September 30, 2026) |
| Rate type | Fixed | Usually variable, tied to the prime rate |
| How you get the money | One lump sum | A credit line you draw from as needed |
| Payment | Fixed monthly payment | Often interest-only during the draw period, then principal + interest |
| Collateral | None (unsecured) | Your home |
| Equity needed | None | Usually up to 80% of your home’s value, minus your mortgage (some lenders 85–90%) |
| Typical credit score | Varies; some lenders accept fair or bad credit | Historically about 680, some lenders go lower |
| Upfront costs | Origination fee of 0–12% at some lenders | Usually low or no closing costs; possible annual or early-closure fees |
| Repayment period | Usually 2–7 years | Often a 10-year draw plus a 10–20 year repayment period |
| Speed | Often 1–2 business days | Usually weeks (home valuation and paperwork) |
| Interest tax-deductible? | No | Possibly, if you itemize and use it to substantially improve the home |
Sources: NerdWallet average personal loan rates, Bankrate HELOC rates, IRS Publication 936.
How each option works
A personal loan gives you the full amount at once. You repay it in equal monthly payments at a fixed rate, usually over two to seven years. Most are unsecured, so the lender decides based on your credit and income, not your home.
A HELOC works more like a credit card backed by your house. The lender approves a credit limit based on your equity. During the draw period, often 10 years, you borrow only what you need and many lenders require interest-only payments. After that, the repayment period begins and you pay back principal plus interest.
Most HELOCs have a variable rate tied to the prime rate. The Wall Street Journal prime rate was 7.00% as of September 16, 2026. If prime goes up, your HELOC payment goes up too.
Real cost example: a $30,000 renovation
Here’s what a $30,000 project could cost with each option, using October 2026 averages. To compare fairly, the first rows assume you repay everything in five years.
| Option | Rate used | Monthly payment | Total interest |
|---|---|---|---|
| Personal loan, excellent credit | 15.16% fixed | $716 | $12,973 |
| Personal loan, good credit | 19.55% fixed | $787 | $17,239 |
| HELOC, rate stays the same | 7.29% variable | $598 | $5,889 |
| HELOC, rate averages 2 points higher | 9.29% variable | $627 | $7,619 |
| HELOC, repaid over 10 years | 7.29% variable | $353 | $12,339 |
Our calculations use the average rates from NerdWallet and Bankrate cited above. They don’t include fees, which vary by lender. A personal loan’s origination fee, or a HELOC’s appraisal or annual fee, would raise the real cost.
The takeaway: over the same five years, a HELOC at today’s average could save you roughly $7,000 to $11,000 in interest. But stretching it over 10 years to get a smaller payment wipes out most of that saving. And if you only pay interest during the draw period ($182 a month at 7.29%), you’ll still owe the full $30,000 when repayment starts.
Can you deduct the interest?
This is where a HELOC can pull further ahead, but only for some homeowners.
- HELOC interest may be deductible if you use the money to buy, build or substantially improve the home that secures the loan, according to IRS Publication 936. The deduction is limited to interest on up to $750,000 of total home debt ($375,000 if married filing separately).
- You must itemize your deductions on Schedule A. If you take the standard deduction, as most taxpayers do, you get no benefit.
- The rules are now permanent. The One Big Beautiful Bill Act, signed July 4, 2025, made the $750,000 limit permanent. It also made permanent the rule that home equity interest isn’t deductible when the money is used for other things, such as paying off credit cards (Iowa State University CALT).
- Personal loan interest is not deductible when you use the loan for personal expenses, including home improvements. The IRS treats it as personal interest (IRS Topic 505).
Repairs that just maintain your home, such as fixing a leak, may not count as substantial improvements. Ask a tax professional before you count on the deduction.
The risks you take with each
HELOC risks
- Your home is the collateral. If you can’t make the payments, the lender can foreclose. This is the most important difference between the two options.
- Your payment can rise. With a variable rate, a jump in the prime rate raises your cost. Some lenders let you lock part of the balance at a fixed rate, sometimes for a fee.
- Payment shock. Moving from interest-only payments to full repayment can sharply raise your monthly bill.
- The line can be frozen or reduced. If your home’s value falls or your finances change, the lender may cut your credit limit before you finish the project.
- Extra fees. Some HELOCs charge annual, application, cancellation or early-closure fees.
Personal loan risks
- Higher interest. Even with excellent credit, the average APR is about twice the average HELOC rate.
- Origination fees. Some lenders take up to 12% from your loan before you get the money, so you may need to borrow more.
- Higher monthly payment. Shorter terms mean bigger payments, which can strain your budget.
- Credit damage if you fall behind. There’s no house at stake, but missed payments hurt your credit and can lead to collections.
Approval requirements and speed
To get a HELOC, you need enough equity. Most lenders let you borrow up to 80% of your home’s value, minus what you still owe on your mortgage. Some go to 85% or 90%. A credit score of about 680 has been the usual standard, though some lenders accept lower. Expect a home valuation, income checks and more paperwork, so it often takes a few weeks.
To get a personal loan, you only need to qualify on credit and income. Many online lenders let you check your rate with a soft credit pull and send the money within one or two business days. That makes a personal loan the practical choice for urgent repairs, like a broken furnace in winter.
Quick equity check: if your home is worth $400,000 and you owe $250,000 on your mortgage, an 80% limit lets you borrow up to $70,000 in total ($400,000 × 80% = $320,000, minus $250,000).
Which should you choose?
| Your situation | Better fit | Why |
|---|---|---|
| Project under about $15,000 | Personal loan | HELOC paperwork and fees eat into the savings on a small balance |
| Urgent repair (roof, furnace, water damage) | Personal loan | Money in days, not weeks |
| Large remodel ($50,000+) | HELOC | The lower rate saves thousands over the life of the debt |
| Project paid in stages over months | HELOC | Draw only what you need and pay interest only on that |
| Little or no home equity | Personal loan | A HELOC requires equity |
| You want a payment that never changes | Personal loan | Fixed rate and fixed term |
| You itemize deductions | HELOC | Interest may be deductible for substantial improvements |
| You may sell the home soon | Personal loan | A HELOC must be paid off when you sell |
A quick checklist before you decide
- Price the project with written quotes, and add 10–20% for surprises.
- Check your equity using the 80% rule above.
- Prequalify for personal loans with a soft pull to see your real APR.
- Ask two or three lenders for HELOC quotes, including your current bank or credit union, and ask about fees and rate caps.
- Compare the total cost, not just the monthly payment, over the time you actually plan to repay.
- Stress-test the HELOC: could you still afford the payment if the rate rose 2 or 3 points?
Other ways to pay for home improvements
- Home equity loan: a lump sum at a fixed rate, secured by your home. It sits between a HELOC and a personal loan.
- Cash-out refinance: replaces your mortgage with a bigger one. Usually only worth it if the new mortgage rate isn’t higher than your current one.
- 0% intro APR credit card: can work for a small project you can pay off before the promotional period ends.
- Savings: paying cash for part of the project lowers how much you need to borrow.
How we built this comparison
We used national averages, not a single lender’s rates: NerdWallet’s personal loan averages by credit score (updated October 1, 2026) and Bankrate’s weekly HELOC survey (week of September 30, 2026). Bankrate’s average assumes a $30,000 line, a 700 credit score and 80% combined loan-to-value. Tax rules come from the IRS and from Iowa State University’s Center for Agricultural Law and Taxation.
We calculated the cost examples ourselves with standard loan formulas. Your own rate will depend on your credit, income, equity and lender. Rates move often, so we review this guide at least once every quarter.
Frequently asked questions
Is a HELOC or a personal loan better for a kitchen remodel?
For a large remodel, a HELOC is often cheaper because its average rate is less than half the average personal loan APR. A personal loan can still make sense if you have little equity, need the money quickly, or want a fixed payment.
Is it easier to get a personal loan or a HELOC?
A personal loan is usually faster and requires less paperwork, since there’s no home valuation. A HELOC requires enough equity and usually a credit score of around 680, though it can be easier to qualify for a large amount because your home secures it.
Is HELOC interest tax-deductible in 2026?
It can be, if you itemize and use the money to buy, build or substantially improve the home that secures the HELOC. The deduction covers interest on up to $750,000 of total home debt. Interest isn’t deductible if you use the money for other purposes.
Can I lose my house with a HELOC?
Yes. A HELOC is secured by your home, so the lender can foreclose if you stop paying. An unsecured personal loan doesn’t put your home at risk, although missed payments will damage your credit.
What credit score do I need for a HELOC?
About 680 has historically been the standard, according to Bankrate, but some lenders accept lower scores. A higher score and more equity usually get you a better rate.
Can I use a personal loan and a HELOC together?
Yes. Some homeowners use a small personal loan for an urgent repair and a HELOC for a bigger project later. Just make sure the combined payments fit your budget.
Disclaimer
This article is for general information only and is not financial, legal or tax advice. We are not a lender, financial advisor or tax professional. Rates shown are national averages from the sources cited on the date above and may change at any time. Your actual rate and terms depend on your credit, income, home equity, state and lender. A HELOC puts your home at risk if you can’t repay. Talk to a qualified tax professional before relying on any deduction.