What’s the Difference Between a Home Equity Loan and a HELOC?

Home equity can do a lot more than increase your net worth.

Many homeowners can borrow against the equity they’ve built in their home to pay for renovations, consolidate debt or cover large expenses. Two of the most common options are a home equity loan and a home equity line of credit, or HELOC.

Here is the difference between a home equity loan and a home equity line of credit. The biggest difference is how a homeowner receives and repays the money they borrow.

What is a home equity loan?

A home equity loan lets a homeowner borrow a one-time lump sum of money. Once the funds are disbursed, the borrower begins repaying the loan according to the terms, similar to other loans.

Home equity loans often have fixed rates, fixed monthly payments and a set repayment schedule. As a result, they can make a lot of sense if a homeowner knows exactly how much they want to borrow or need certainty with the rate or pay-back period.

What is a HELOC?

A home equity line of credit, or HELOC, is a revolving line of credit secured by a borrower’s home. It works like a credit card, where someone is approved for a credit limit they can revolve instead of a lump sum.

A homeowner can take only what they need, repay and borrow again up to their credit limit during the draw period. Alternatively, a homeowner can also open a HELOC and decide not to use it at all. Interest is typically a variable rate and is charged only on the amount actually borrowed.

A HELOC can provide homeowners with flexibility, which makes it a popular choice for ongoing expenses or phased projects, such as a home renovation or remodel project that involves multiple contractors or various stages of work.

How is a home equity loan similar to a HELOC?

Home equity loans and home equity lines of credit are both loans secured by home equity.

The lender has collateral and views the loan as less risky, generally providing borrowers with lower rates than unsecured loans or credit cards as a result.

Is a home equity loan or HELOC better?

The better option depends on your financial circumstances and borrowing needs.

A home equity loan might make more sense than a HELOC if:

• You know exactly how much you need to borrow.
• You prefer a fixed rate.
• You want the predictability of a set repayment schedule and fixed monthly payments to pay off the loan by a certain date.

A home equity line of credit may be a better fit than a home equity loan if:

• You want the flexibility to borrow only what you need.
• You expect to borrow over time instead of only once.
• You can get a lower rate than a home equity loan. (Home equity lines of credit often have variable interest rates.)

Before choosing either option, it’s crucial to review and understand the APR, fees, repayment terms, borrowing limits, and whether the rate is fixed or variable to make sure it fits your financial needs.

Some lenders, such as Aven, do not charge annual, cancellation or prepayment fees, which can lower your borrowing costs.¹

The bottom line

Homeowners can borrow against their home equity with a home equity loan or a home equity line of credit. A home equity loan provides a one-time lump sum loan with fixed monthly payments, while a HELOC offers a revolving line of credit that can be used as needed. The best option depends on how you plan to borrow and repay.

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This post is for informational purposes only and does not provide any financial, investment or tax advice. The information presented may not be suitable for your individual circumstances. Before making any financial decisions, consider consulting a qualified professional who can provide advice based on your specific situation.

¹ Aven Home Equity Card is a home equity line of credit featuring fixed rate plans and a variable rate revolving line of credit, each with its own annual percentage rate ("APR"). APR is the cost of credit as a yearly rate and does not include costs other than interest. The variable APR for the revolving line of credit is based on the prime rate published by the Wall Street Journal in its Money Rates section ("Index") plus a margin that takes into account your creditworthiness, collateral value, etc. The Index as of July 8, 2026, was 6.75%. The APR will not exceed 14.99%. Best rates for most qualified borrowers on primary residences. Headline rate available for credit limits of $175,000 or less. The fixed APR for fixed-term plans (aka Aven Simple Loans) is based on your variable APR and other factors at the time you agree to the Aven Simple Loan. The fixed APR will not change during the loan's term. For cash outs and balance transfers, there is a 2.5% fee on the amount transferred. Based on your property's location, there may be recording fees and in-person signing costs, including attorney fees. You are responsible for all recording fees and in-person signing costs, including attorney fees. See Pricing & Terms for details. Terms are subject to change.

If your Aven account is refinancing an existing lien, there is a fee of 2.5% of the total payoff amount of the existing lien. Your account may not be activated until the holder of your existing lien acknowledges receipt of your payoff amount.

Your applicable APR assumes a 0.25 percentage point discount for enrolling in AutoPay within 25 days after account opening and then staying enrolled. You are not required to enroll in AutoPay. See AutoPay Terms & Conditions for more details and restrictions.