A HELOC can provide you with access to the affordable financing you need right now.
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Borrowing money always comes with a series of related questions. Where should the money be borrowed from? How much should be borrowed? What borrowing tool should be used? And, perhaps most importantly, what's the cheapest way to borrow right now? For many borrowers accustomed to the low-interest rate climate of the recent past, a personal loan was often one of the better and more affordable options. But the economic climate of May 2025 is far different from what it was in May 2020, for example.
In today's economy, many find themselves turning to their home equity as a viable financing source. And with the average home equity amount around $313,000 right now, it's easy to understand why. Even with a robust pool of money to utilize, however, questions over cost still linger. If homeowners choose a home equity line of credit (HELOC), for example, will it be cheaper than if they had elected for a personal loan instead? That's what we'll answer below.
See how much equity you could borrow with a HELOC here.
HELOC or personal loan: Which is cheaper now?According to Bankrate, the average personal loan interest rate right now is 12.47% while the average HELOC rate is just 7.99%, making personal loans almost five percentage points higher. Put another way: Personal loans are 56% more expensive than HELOCs right now. That's due, in part, to the fact that HELOCs are secured with the home serving as collateral while personal loans are not. So, if you don't pay your personal loan back, you won't lose your home, but the same can't be said for a HELOC. Still, if you can manage your payments appropriately, a HELOC is the clear, less expensive option right now.
HELOCs also have variable interest rates that will change monthly for borrowers, while personal loans are generally fixed and will require refinancing to secure lower rates in the future. A variable rate can be risky in a climate in which rate hikes look likely. But that's not the climate we're currently in. Not only were rates cut multiple times in the final months of 2024, but they also look likely to be cut again in the months to come. Since HELOCs are largely driven by the Fed's rate activity, that means the HELOC rate and payment you secure this month will likely be lower before the end of the summer. The same can't be said for a personal loan.
To make the point even clearer, it helps to do the math. Here's what borrowing $50,000 would cost monthly over 10 years with either option, assuming the HELOC rate stays constant and doesn't drop any further from where it is as of May 14, 2025:
10-year HELOC at 7.99%: $606.37 per month10-year personal loan at 12.47%: $731.01 per monthMonthly difference between the two: $124.64And here's what it would cost when borrowing $100,000 at the same rates:
10-year HELOC at 7.99%: $1,212.75 per month10-year personal loan at 12.47%: $1,462.01 per monthMonthly difference between the two: $249.26 per monthSo, depending on the amount of money borrowed, homeowners can save hundreds of dollars per month by using a HELOC instead of a personal loan. Just remember that these rates are averages that are generally available for borrowers with good credit scores. If your credit needs improving, it may make sense to work on that before applying for either option. On the other hand, if you have a very high credit score, you may be eligible for slightly lower rates than shown here.
Check your HELOC rate offers online today.
The bottom lineIn the interest rate climate of May 2025, a HELOC is much cheaper than a personal loan. And with a variable rate slated to decline even further and the ability to borrow a large, six-figure sum of money more easily available than it would typically be with a personal loan, many homeowners would be better served by choosing this borrowing option right now. Just be sure to calculate your repayments with precision to ensure long-term affordability should the rate climate shift again in the future.
Matt Richardson