Is a home equity loan cheaper than a personal loan, and what changes when your house backs the debt?

Summary

The home equity loan usually has the lower rate, because the house secures it, but it does not always cost less. Its long terms (10 to 20 years at Regions Bank) mean that paying it off on schedule can produce more total interest than a three-year personal loan at a higher rate. What the rate comparison leaves out is the lien itself: fall behind on a home equity loan and the house itself is at risk, which is not the case with an unsecured personal loan.

One bank, both products

Regions Bank publishes terms for both, which makes it a clean comparison. Its home equity loan runs from 6.75% to 13.75% APR, for $10,000 to $500,000, on terms of 10, 15 or 20 years, and "Bank pays all closing costs." Its unsecured personal loan runs from 8.74% to 29.99% APR, for $2,000 to $50,000 for existing customers, on terms of 36 to 60 months, with no origination, application or prepayment fees.

The two ranges overlap more than the headline suggests. The personal loan's 8.74% floor is only for borrowers with excellent credit who use a Regions checking account for Auto-Pay, take a 36-month term and borrow $25,000 or more. You also need a Regions deposit account that has been open for at least six months. The home equity loan's APR depends on occupancy, lien position, credit score, loan-to-value ratio and term.

$50,000 two ways

Regions' own example for the home equity loan is $50,000 over 10 years at 6.75% APR: 120 payments of $574.12, or $18,894 in interest over the life of the loan.

Take the same $50,000 as a personal loan at 8.74% for 36 months and the payment is $1,583.94. Total interest is $7,022. The loan with the higher rate costs about $11,900 less, because the balance is gone in three years instead of ten.

Now pay the home equity loan at the personal loan's pace, $1,583.94 a month. It is paid off in 35 months with $4,965 in interest, assuming the contract allows early payoff without a charge. At equal speed, the lower rate wins. The gap in the first comparison came from the term, not the rate.

At the top of each range the numbers look different again. Regions' second example, $50,000 over 15 years at 13.75%, is $657.49 a month and $68,349 in interest. A 60-month personal loan at 29.99% is $1,617.36 a month and $47,042 in interest.

What the lien changes

The CFPB names the main risk directly: "if you cannot repay a home equity loan or home equity line of credit, you could potentially lose your home." On using equity to clear other debts, it adds, "When you use home equity to pay off other debts you really aren't paying them off." The debt moves from unsecured to secured.

The lien also gives the borrower something. Under Regulation Z, a credit transaction secured by your principal dwelling can be rescinded "until midnight of the third business day following consummation," or later if the required notice or disclosures were not delivered. Loans to buy the home are exempt, but a home equity loan taken out later is covered. An unsecured personal loan puts no security interest on the home, so this right does not arise.

Taxes differ as well. The IRS draws the line by what the money pays for: under Publication 936 (2025), home equity interest can be deducted "only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan." Consolidating credit cards or buying a car with a home equity loan leaves the interest nondeductible, even though the house secures the loan.

Sources

Written by Kaz (pen name). Figures are copied from providers' published pages on the dates shown. We have not used these products. Corrections: contact form.