Difference between Line of Credit and Home Equity Loan

Meaning

It is a revolving credit account that allows you to borrow money up to a pre-determined limit.

It is a type of loan that allows homeowners to borrow money using the equity they have built up in their home as collateral.

Nature of Credit

It is a revolving credit facility.

It involves lump sum loan.

Security

Line of Credit is generally unsecured or is partially secured.

Home Equity Loan is secured by residential property.

Interest Rates

The interest rate varies in case of line of credit.

The interest rate of home equity loan is usually fixed.

Interest Charges

Interest is paid only on the amount utilized.

Interest is charged on the entire loan amount disbursed.

Credit Limit

One can borrow up to a pre-determined credit limit.

One can borrow a lump sum based on available equity in the property.

Flexibility in Repayment

Line of Credit has flexible repayment structure.

The borrower has to pay fixed installments over a set term.

Security Risk

The risk of asset repossession is less.

There is higher risk in home equity loan due to property serving as collateral.

Suitability

It is suitable for varying or unpredictable expenses.

It is suitable for one-time expenses with fixed funding requirements.