An equity loan and equity line of credit are both financial vehicles secured by real estate; however, a loan is a lump sum and a line of credit is more like a credit card. A line of credit also only charges interest on funds spent, where a loan charges monthly payments and thus consistent interest.
Equity Loan vs Line of Credit FAQs
An equity loan is a lump-sum loan that provides you with a fixed amount of funds at one time, while a line of credit allows you to borrow up to a certain limit whenever you need additional funds.
Equity loans are often used for large purchases or projects such as home renovations, while lines of credit are commonly used for ongoing expenses such as medical bills or business investments.
The interest rate for both types of financing is typically determined by the current market rate and your credit history.
Repayment terms for both types of financing will vary depending on the lender, however, most equity loans have fixed repayment periods with regular monthly payments, while lines of credit usually require a minimum regular payment plus any additional charges incurred during that period.
The amount you can borrow depends on several factors including your income, debt-to-income ratio, and available collateral. Your lender can help determine how much you are eligible to borrow.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
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