When you take out a HELOC (Home Equity Line of Credit), you are borrowing against the equity you have built in your home. This can be a smart way to access cash to pay for home improvements, consolidate high-interest debt, pay for education or medical expenses, or use in the event of an emergency. But how does a HELOC compare to other loans? From your financial partners at Benchmark Federal Credit Union, here are a few key factors to consider.

HELOC vs. Credit Cards

HELOCs and credit cards share a key trait: They both are revolving forms of credit. However, credit card payments are open-ended, and many HELOCs have an initial draw period where you can draw against your credit line followed by a repayment period where you can no longer draw on the line.

When would a HELOC be better than a credit card? When comparing, it’s important to look at the interest rates. While some credit cards offer zero percent interest rates, this is usually an introductory offer for a limited time. HELOCs typically offer very competitive adjustable interest rates, making them a smart alternative to maxing out a high-interest credit card, and a good choice when consolidating credit card debt or paying down other high-interest debt.

HELOC vs. Personal Loan

Personal loans can be used for any need, from emergency expenses to large purchases or debt consolidation. While you may be able to get cash in hand faster with a personal loan, it may come with higher, fixed interest rates and a higher monthly payment.

On the other hand, a HELOC uses your home as collateral to secure lower interest rates and longer repayment terms. This can result in lower monthly payments than personal loans and because a HELOC is secured, you can usually borrow a higher amount based on the equity in your home.

HELOCs are a great option for covering many financial needs or unexpected expenses that are spread out over time, while a personal loan might be better for a small, one-time expense.

HELOC vs. Auto Loans

While a HELOC is not typically used in lieu of an auto loan, it might provide the borrower with a lower rate and a longer repayment term. This is attractive to some borrowers looking to save. A downside of using a HELOC is that there may be costs involved that you wouldn’t have with a traditional auto loan.

In addition, depending on the use of your HELOC funds, there may also be some tax advantages if the funds are used to substantially improve your home.

If you’re a homeowner with equity built in your home, the special introductory HELOC rate found at BenchmarkFCU.org offers a cost-effective solution for funding any home project or paying any emergency expense. Benchmark FCU’s Ultimate HELOC offers other perks as well, such as an interest-only repayment option, no prepayment penalty after one year, and no inactivity fee.

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Rebecca Worthington is the Vice President of Community Relations at Benchmark Federal Credit Union, the only federal credit union to exclusively serve Chester County. For more information on a Home Equity Line of Credit (HELOC) and Benchmark FCU’s Ultimate HELOC, visit BenchmarkFCU.org or call (610) 429-1600.

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