When it comes to securing extra funds for big financial moves, there are a few options to choose from. Two popular options are taking out a loan from your 401k or opening a home equity line of credit (HELOC). But which one is the better option? It depends on a few key factors.
401k Loan vs HELOC vs Home Equity Loan: How to Choose
When it comes to taking out a loan, there are a few things to consider. The first is whether you want a short-term or long-term loan. A 401k loan is typically a short-term loan, while a HELOC or home equity loan is a long-term loan.
The next thing to consider is how much money you need. A 401k loan can range from $1,000 to $50,000, while a HELOC can range from $10,000 to $100,000. A home equity loan is typically for a larger amount, starting at $25,000.
The interest rate is another important factor to consider. The interest rate on a 401k loan is typically lower than the interest rate on a HELOC or home equity loan. However, the interest on a 401k loan is not tax-deductible.
Finally, you need to consider the repayment terms. A 401k loan must be repaid within five years, while a HELOC typically has a 10-year repayment period. A home equity loan typically has a 15- or 30-year repayment period.
So, which option is best for you? It depends on your individual situation. If you need a short-term loan for a small amount of money, a 401k loan may be the best option. If you need a long-term loan for a larger amount of money, a HELOC or home equity loan may be the better option.