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It can be relatively simple to qualify for a loan for a small amount of money. Depending on the lender, borrowers may not even be required to have a good credit score. As the amount of money needed grows, however, the criteria for borrowers will become more stringent. This is especially true for loan amounts worth $100,000 or more. Prospective borrowers in need of this much financing should understand the qualifications for both home equity loans and personal loans, in particular, to determine which is better for their circumstances.
But the eligibility criteria aren’t the only factor to account for, especially when borrowing $100,000. The monthly costs associated with the loan are also critical to get right, particularly for home equity loans that utilize the home in question as collateral. If borrowers are unable to pay what’s been withdrawn, they could lose their homes back to the bank. So it’s critical to calculate the potential costs before formally applying, especially in today’s unpredictable economic climate with inflation rising and interest rate relief frozen. Against this backdrop, it helps to know which is cheaper now: a $100,000 home equity loan or a $100,000 personal loan. Below, we’ll do the math.
See how much home equity you’d be eligible to borrow here.
$100,000 home equity loan vs. $100,000 personal loan: Which is cheaper in 2025?
While personal loan interest rates plunged into the low 9% rate range in 2020 and 2021, they’ve rebounded significantly in recent years. That’s due to an exponential increase in inflation and interest rates. And even though inflation is down to 3% from its recent high of over 9% in June 2022, the federal funds rate has only dropped one percentage point in that time, leaving rates on personal loans around 12% now. And they’re likely to remain there, minus a major change in inflation and Federal Reserve monetary policy.
Home equity loan rates, however, were also in the double-digit range at the start of 2024. But the approximate 10% they hovered at then isn’t the same now. Home equity loan rates steadily declined for much of the last 12 months, with the average overall rate at 8.41% now. Since home equity loans have collateral (and personal loans don’t), rates on the former tend to be much lower, as demonstrated now. Here’s what that looks like in dollars and cents, tied to 10- and 15-year repayment periods:
- 10-year personal loan at 12%: $1,434.71 per month
- 15-year personal loan at 12%: $1,200.17 per month
- 10-year home equity loan at 8.41%: $1,235.05 per month
- 15-year home equity loan at 8.41%: $979.47 per month
10-year home equity loans, based on the above calculations, are around $200 cheaper each month than their personal loan counterparts with the same terms. The difference between 15-year home equity loans, meanwhile and 15-year personal loans is even starker, with the former around $220 cheaper each month. In other words, if you need $100,000 right now and want to spend as little each month to pay it back, a home equity loan is the cheaper option.
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Other home equity loan considerations
While a $100,000 home equity loan is cheaper than a $100,000 personal loan, there are other considerations borrowers should account for. As noted, home equity loans use the home as collateral, so it’s critical that borrowers have a viable way to repay all they’ve deducted. They should also strive to use the loan for select purposes (like home repairs) and avoid others (like paying for weddings and big-ticket items) since the former could qualify for a home equity loan tax deduction while the latter won’t. Finally, home equity loan rates are largely driven by the larger rate climate, so if rates tick up there, home equity loan rates will follow, potentially pushing them back into the double-digit range. In other words, if you know you want to borrow $100,000 with a home equity loan, consider acting promptly, before rates potentially become less favorable.
The bottom line
A $100,000 home equity loan is significantly less expensive than a $100,000 personal loan if opened now. But the former uses the home as collateral while the latter doesn’t. That’s a big difference that may or may not be beneficial, depending on your financial circumstances. Carefully review the costs of both then, and familiarize yourself with the nuances of each loan type, to truly determine which product is most applicable to your unique goals and financial situation both in 2025 and beyond.
