Personal Loan vs HELOC vs Cash-Out Refinance: How to Choose?

So you want to borrow some money and you’re not sure about the right type of loan.

Personal loans, home equity lines of credit, or cash-out refinances can be good financing options, but choosing the best one can look different for everybody.

Each loan type has advantages catering to certain situations.

Personal loans

A personal loan classifies as an installment loan, meaning you borrow a lump sum over a fixed period and repay it equally every month.

Nearly all personal loans are unsecured. That means you don’t have to put up your home, car, or any other asset as collateral. With rare exception, the funding comes with no restrictions for what you use it for. Many borrowers take out personal loans to consolidate high-interest debt, pay emergency expenses, or fund major life events.

Personal loans typically come with terms between one and seven years and carry interest rates higher than secured loans. The average interest rate on a 2-year personal loan was 11.65% as of November 2025, according to the Federal Reserve.

Like with other types of financing, better credit scores tend to qualify for lower interest rates and larger lending limits.

Personal loans almost certainly get your money much sooner than with a refinance or home equity product. With those, it often takes 30-45 days to get your hands on the cash. With a personal loan, it rarely takes longer than a week and you can even receive it within 24 hours.

Lenders charge origination fees on personal loans, typically between 1% and 12% of the total loan amount. With the fee drawn directly from your funds, you need to account for that when calculating how much you want to borrow.

Home Equity Lines of Credit

A home equity line of credit (HELOC) turns your home’s value into cash by tapping into your equity.

This credit line secured by your property works similarly to a credit card: you have a maximum spending limit that you can draw from whenever you need to. You pay down your balance and interest to replenish your available credit.

Because HELOCs are a secured loan type, they come with lower interest rates compared to personal loans. HELOCs offer borrowers access to their home equity without having to sell or refinance.

Your HELOC credit limit is based on how much equity you have built up, and lenders typically allow you to borrow up to 85% of your property’s value.

Example of HELOC loan amount calculation:

• Appraised value: $500,000
• $500,000 x 85%: $425,000
• Current mortgage balance: $300,000
• HELOC amount available ($425,000 - $300,000): $125,000

Cash-out refinances

A cash-out refinance replaces your existing mortgage, and you receive the cash difference between your new loan amount and your old one.

Cash-out refinancing lets you tap the equity in your home and use it for any purpose you like. In general, borrowers use this refinancing type for home improvements, debt consolidation, emergency bills, or investments.

Essentially, cash-out refis grant access to potentially large sums of money at relatively low interest rates compared to a personal loan or credit card.

A cash-out refinance lets you borrow against your home’s equity. How much you can actually take out depends on your home value, remaining mortgage balance, and your lender’s loan-to-value (LTV) limit.

Calculating your cash-out total

• Figure out your home's equity - Subtract your current mortgage balance from your home’s value. Example: $500,000 - $300,000 = $200,000 in equity
• Estimate your maximum new loan - Multiply your home value by your allowed LTV ratio. Example: $500,000 x 80% = $400,000 max loan amount
• Calculate your available cash - Subtract what you owe on your current mortgage from your new loan amount. Example: $400,000 - $300,000 = $100,000 potential cash-out
• Subtract closing costs - Expect 2%–5% in closing costs. Example: $100,000 – ($400,000 × 3% = $12,000) = ≈$88,000 as your net cash-out

Loan comparison chart

The table below provides a side-by-side comparison of top-line information for personal loans, HELOCs, and cash-out refinances.

Credit barriers to borrowing

Whatever sort of loan you want, your credit score will play a huge part in determining your costs.

If your credit is bad (below 620 for some personal loan lenders), you might not get a loan at all. And if it’s only poor or fair, you’ll have to pay a much higher interest rate.

So the better your score, the less you’re going to have to pay. If you can (and need to), it might be better to take some time to improve your score before you apply for a loan.

Your choice — based on your situation

Sometimes a personal loan is the smartest choice. Sometimes a HELOC or cash-out refinance makes more sense. It all depends on your financial situation, preferences, and goals.

Remember to weigh your options, do the math to make sure the loan fits your budget, and read the fine print. When you’re ready, reach out to a loan officer and get started.