Couple speaking with a banker.

Guide to Personal Loans and Home Equity Lines of Credit

By Daniel Capes, Chief Credit Officer

When it comes to financing a large expense or consolidating debt, many people look to personal loans and HELOCs. Currently, Vision Bank offers secured and unsecured personal loans, as well as secured HELOCs. A loan is said to be unsecured if it does not require collateral, home equity loans require collateral. Personal loans and HELOCs can be a good alternative to using a credit card. However, personal loans work differently from HELOCs. Learn about the differences so you can choose the best financing option for your needs.

What is the difference between a HELOC and a personal loan?

The primary difference between a personal loan and HELOC is whether you want to receive a lump sum upfront and repay it in predictable monthly payments, or if you want more flexibility with how much you borrow and when.

  • Personal loan: Provides a specific amount of financing that you receive upon approval of your loan application. Repay the amount borrowed, plus interest, in predictable monthly payments for the duration of the loan term. This loan type is ideal for a large expense or debt consolidation when you already know how much you need to borrow.
  • HELOC: Similar to a credit card, but it’s linked to a checking account for convenient transfer of funds between your credit line and checking account. HELOCs have a borrowing limit and a variable interest rate. You can open one without using it right away. Borrow what you need, when you need to, pay it back, and use the credit line again. Best for flexibility and unknown future expenses such as home improvement projects or a series of larger upcoming expenditures. Some banks have a draw requirement on home equity lines of credit, so be sure to ask your banker about requirements and fees.

Upgrade your home to create value.

 

When deciding whether you should consider either a personal loan or a HELOC, the first question to ask yourself is: what is the purpose of the loan? For example, if you will be using the funds on your house for a remodel project, new fence, HVAC, etc., then a HELOC is usually a better option. If it is for a vacation or to consolidate debt, then a personal loan may be the ideal option. Personal loans have shorter repayment terms than a typical HELOC, and that can factor into the decision-making process. Both financing solutions require solid credit history and are subject to approval by the lending institution 

As for the potential tax benefits of choosing one loan type over another, everyone’s tax position is different, so you should consult with your tax professional for advice on your specific situation.

What can a personal loan or HELOC be used for?

While there are few restrictions on what your personal loan or HELOC can be used for, the most common uses include:

  • Debt consolidation
  • Home improvement and renovation projects
  • Large purchases such as furniture, tech devices, etc.
  • Life events such as a vacation, wedding, etc.
  • Emergency fund

 

Collect documents before applying.

 

How to apply for a personal loan or HELOC

Because personal loans are not secured by an asset like a home, the application process is usually fairly simple and straightforward.

Before applying for a personal loan or HELOC:

Determine how much you are looking to borrow and what you need it for, as you will be asked that. You will need to provide tax returns, W-2’s and/or paycheck stubs. Exact information will be determined based on the loan amount you’re looking for and the type of loan you are looking for. Every bank will be a little different. Typically, you will need to be able to verify your income. You do not want to go and try to get a number of new credit cards prior to the request, as each inquiry has the potential of reducing your credit score. Make sure your credit history is good. Many credit card companies have a service to view and monitor your score, at no cost, but you can also receive a free copy of your report annually.

  • Know your rights (Regulation Z).
  • How much do you want to borrow?
  • Understand Debt-To-Income ratio (DTI), which is the percentage of your monthly take-home pay allocated to debt payments.
  • Credit check: Check your credit report and improve your score as needed.
  • Don’t make big purchases or apply for new debt (that could affect your credit score or DTI).

Documents needed to apply:

  • Complete the application online or in a branch
  • Proof of identity such as a state-issued ID or driver’s license, passport, or military ID
  • Proof of address on your ID card or utility bill statements
  • Income and employment verification such as recent paystubs
  • Additional information may be requested by your loan officer

How much time will it take for my personal loan or HELOC to get approved?

Generally, personal loans are approved or denied on the same business day or the next one, as long as the application is completed in full, and all required information is provided. Typically, with HELOCs, they are approved or denied by day 3, or sooner.

 

Fix credit score issues before applying for a loan.

 

How could my credit affect my loan application?

If your credit history has some blemishes, then you should obtain a copy of your credit report, review for accuracy, and address any outstanding items. It takes time to rebuild your credit history and score after a financial setback, but our bankers at Vision Bank are always happy to provide advice on how to raise your credit. Contact us with questions!

Apply for a Personal Loan or HELOC from Vision Bank!

Are you looking for a personal loan or HELOC in Oklahoma? Apply online, visit a branch, or call 888-332-5132 to learn more. Vision Bank has been a vital part of south central Oklahoma and beyond for more than 120 years. Our bankers can help you address whatever financial challenge or need you have. Come see the difference at Vision Bank!

 

Use our loan calculators to explore different scenarios around debt consolidation, credit lines, and HELOC. 

Discuss your HELOC needs with a member of our lending team. Contact Vision Bank at 888-332-5132, apply online or visit one of our convenient locations to learn more.