Author Topic: Personal Loan vs. HELOC  (Read 1140 times)

Offline Thrifty

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Personal Loan vs. HELOC
« on: May 15, 2023, 11:35:30 AM »
I'm trying to figure out the benefits/downsides to a HELOC vs. a personal loan and which one would best meet my needs.  I need a loan to tide me over the summer when my workload/pay are lower.  I had a HELOC in the past that I used when needed over the summer months but I had to close it when I refinanced my house.  From what I understood from speaking to a guy at the bank, the interest rate on a personal loan is significantly lower but I need to take a lump sum initially and then I'm paying interest on the full amount starting from the first payment.  In addition, even if I prepay, I would continue paying the full loan amount monthly until the loan is fully paid off.  With a HELOC the rate is higher but I can take out what I need as expenses come up rather than guesstimating how much of a shortfall I'll have over the summer.   Also, the payment is lowered if I prepay part of the loan.  Is there anything else I'm missing?  Any suggestions which type of loan makes most sense in this case?  TIA for any advice you can give me!

Offline JACKBLUE

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Re: Personal Loan vs. HELOC
« Reply #1 on: May 15, 2023, 11:48:46 AM »
Looks like you answered all your questions yourself! Great job!

Offline Redbull3

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Re: Personal Loan vs. HELOC
« Reply #2 on: May 15, 2023, 12:07:04 PM »
I'm trying to figure out the benefits/downsides to a HELOC vs. a personal loan and which one would best meet my needs.  I need a loan to tide me over the summer when my workload/pay are lower.  I had a HELOC in the past that I used when needed over the summer months but I had to close it when I refinanced my house.  From what I understood from speaking to a guy at the bank, the interest rate on a personal loan is significantly lower but I need to take a lump sum initially and then I'm paying interest on the full amount starting from the first payment.  In addition, even if I prepay, I would continue paying the full loan amount monthly until the loan is fully paid off.  With a HELOC the rate is higher but I can take out what I need as expenses come up rather than guesstimating how much of a shortfall I'll have over the summer.   Also, the payment is lowered if I prepay part of the loan.  Is there anything else I'm missing?  Any suggestions which type of loan makes most sense in this case?  TIA for any advice you can give me!

The biggest thing to add is that HELOC has a draw period (usually 10 years) in which you only have to pay interest, but if you also pay principal you free up credit line to reborrow. After the draw period whatever you owe is basically made into a standard loan that requires interest+principal (usually 20 years). Some banks have an annual fee during draw period (mine is $50 - I have a HELOC w/ TD).
I think a HELOC makes more sense than a loan if you don't know how much you're going to need and if you don't want to start paying it back immediatel.y

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Re: Personal Loan vs. HELOC
« Reply #3 on: May 15, 2023, 01:33:46 PM »
Do you have any credit cards with a 0% balance transfer that has a 3% fee?
Is the credit line large enough for your summer needs?

Often those offers allow  you to write a check to yourself or deposit the money into your bank.  You don't usually have just a one and one chance, but they allow you to to more 'balance transfers' over the whole special fee periods.

Often the offer is either 3%  up front fee on the amount or 5% interest on any amount still outstanding. Total due by 12, 15 or 18 months, before interest rate going up to usual 18-24%.
The 5% offer, if you have one and can tap it, would work well for you.
My favorite cause: cssy.org

Offline tov hashem

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Re: Personal Loan vs. HELOC
« Reply #4 on: May 15, 2023, 01:39:15 PM »
Do you have any credit cards with a 0% balance transfer that has a 3% fee?
Is the credit line large enough for your summer needs?

Often those offers allow  you to write a check to yourself or deposit the money into your bank.  You don't usually have just a one and one chance, but they allow you to to more 'balance transfers' over the whole special fee periods.

Often the offer is either 3%  up front fee on the amount or 5% interest on any amount still outstanding. Total due by 12, 15 or 18 months, before interest rate going up to usual 18-24%.
The 5% offer, if you have one and can tap it, would work well for you.
just to remember not to use that card for purchases while having a BT balance. since you'll pay interest on the remaining balance even if you pay the whole (minus the BT) balance by the due date.
 also there are a few business CC that offer 0%APR so it wouldn't affect your score

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Re: Personal Loan vs. HELOC
« Reply #5 on: May 15, 2023, 02:06:01 PM »
I'm trying to figure out the benefits/downsides to a HELOC vs. a personal loan and which one would best meet my needs.  I need a loan to tide me over the summer when my workload/pay are lower.  I had a HELOC in the past that I used when needed over the summer months but I had to close it when I refinanced my house.  From what I understood from speaking to a guy at the bank, the interest rate on a personal loan is significantly lower but I need to take a lump sum initially and then I'm paying interest on the full amount starting from the first payment.  In addition, even if I prepay, I would continue paying the full loan amount monthly until the loan is fully paid off.  With a HELOC the rate is higher but I can take out what I need as expenses come up rather than guesstimating how much of a shortfall I'll have over the summer.   Also, the payment is lowered if I prepay part of the loan.  Is there anything else I'm missing?  Any suggestions which type of loan makes most sense in this case?  TIA for any advice you can give me!
Depending on where you’re located, there are a number of Credit Unions and possibly banks that offer 2.5% interest for the first year. You may even find 0% interest for 6 months. This can be very helpful if you only need it short term. Just need to make sure they don’t charge any fees upfront or early termination fees. Even with fees it may be worth it depending on your circumstances.

Online SPOOGER

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Re: Personal Loan vs. HELOC
« Reply #6 on: May 15, 2023, 10:26:41 PM »
Hi, if anyone has this info it would be very helpful for me. When mention personal loans have lower rates... how much lower on average? What is typical repayment time on personal loan. Do most banks offer personal loans?

Offline Redbull3

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Re: Personal Loan vs. HELOC
« Reply #7 on: May 16, 2023, 09:07:09 AM »
Hi, if anyone has this info it would be very helpful for me. When mention personal loans have lower rates... how much lower on average? What is typical repayment time on personal loan. Do most banks offer personal loans?
I didn't know personal loans have lower interest, I certainly don't think it's significant. The biggest thing is that it's fixed while the HELOC is variable. So if you think rates might be going up it's another consideration for "locking in" w/ a loan; down, HELOC.

Offline Thrifty

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Re: Personal Loan vs. HELOC
« Reply #8 on: May 17, 2023, 09:20:59 AM »
Thank you to everyone who took the time to reply and provided additional insight for us to consider!