EchoBay Expert: What's the difference between a home equity line of credit and a home equity loan?
Loyal Reader: In the simplest terms, think of a credit card and think of a car loan. One you pay off in equal monthly installments and one is a revolving line of credit where the amount of cash available to you increases each time you pay down your balance.
A home equity line of credit works like a low-interest credit card. You borrow from the line of credit when you need to access the funds, and as you pay the money back, your line of available credit increases again. A home equity loan is like a car loan, but generally with a much lower interest rate.
You borrow a set amount of money, which is paid to you in one lump sum, and then you pay the money back in set monthly installments over a set period of time according to the terms of the loan. A home equity loan is great if you know exactly how much money you need and you want to pay it back over a set period of time.
If you're not sure how much cash you're going to need for a project or an expense and you'd like the flexibility of accessing funds only as you need them, a home equity line of credit is probably your best bet.