3 Loan Options for Home Improvement Projects | 401k Loan vs Home Equity Loan vs HELOC
When you’re ready to tackle a home improvement project, you may be wondering what kind of loan is best. Here we compare 3 popular loan options for home improvement projects: a 401k loan, a home equity loan, and a home equity line of credit (HELOC).
A 401k loan is a loan that you take out from your own 401k account. The advantage of a 401k loan is that it’s relatively easy to qualify for and the interest you pay is usually lower than the interest you would pay on a home equity loan or HELOC. The downside of a 401k loan is that you’re borrowing from your own retirement savings, so if you can’t repay the loan, you could end up jeopardizing your retirement.
Home Equity Loan
A home equity loan is a loan that is secured by the equity in your home. The advantage of a home equity loan is that it usually has a lower interest rate than a unsecured loan, such as a personal loan. The downside of a home equity loan is that it puts your home at risk if you can’t repay the loan.
Home Equity Line of Credit (HELOC)
A HELOC is a line of credit that is secured by the equity in your home. The advantage of a HELOC is that you can borrow only the amount you need and you only pay interest on the amount you borrow. The downside of a HELOC is that it typically has a higher interest rate than a home equity loan and it puts your home at risk if you can’t repay the loan.
So, which loan is best for you? It depends on your individual situation. If you have good credit and you’re confident you can repay the loan, a home equity loan or HELOC may be a good option. If you have less-than-perfect credit or you’re not sure you can repay the loan, a 401k loan may be a better option.