Home Equity Lines of Credit and Credit Cards
2009-05-31 by Lee
2009-05-31 by Lee
HELOCs and credit cards are offered by the same banks, and sometimes sold as something the same instrument. In reality, HELOCs and credit cards are not that similar, but are both credit tools. Both have their uses and applications. Which is better for your needs? Here is a quick comparison of the two.
Long term debt
For long term debt, HELOCs are the clear winner. HELOCs have interest rates half that of credit cards, featuring much better repayment terms. The payment options on HELOCs allow you to make payments for up to 30 years. In contrast, credit cards do not have much of a repayment option, but charge high interest.
Short term debt
For balances that will be immediately paid off, credit cards have the advantage. HELOCs do not have the same grace period as credit cards, and interest is charged instantly. Credit cards have up to 55 days of free interest, and thus, for very short term debt, a credit card wins.
Availability
For home owners, a HELOC can be easy to get. However, those who do not have sufficient equity in their home can still obtain a credit card. Obtaining a credit card is easy for even people with bad credit. Credit cards win this category handily.
Convenience
This column would have gone to credit cards in the past, but with the invention of HELOC cards, HELOCs are the clear winners. HELOC cards are very similar to credit cards except they work on the same payment terms as a HELOC. One swipe of the card can still buy everything you want, and the draw checks for HELOCs are much cheaper in fees and others costs than credit cards. HELOCs take the cake for convenience.
Credit lines
For the average person, a HELOC gives more credit than a credit card. Home equity loans are given to the amount up to 85% of your home equity. Credit cards are generally low limit unless you are very wealthy, but if you are in that category, you most likely already have a lot of home equity.
Fees and costs
Credit cards are much cheaper to maintain than the average HELOC. Credit cards now come very standard with the same fees and maintenance costs. HELOCs can be as pricey or as cheap as the lender will allow. Annual fees on HELOCs are usually higher than credit cards, but this is cancelled by the difference in credit line. However, for most people, a credit card is cheaper.
Flexibility
HELOCs by far win in this category. A HELOC can be used for anything, even high priced items, whereas credit card companies look down on high balances. Your HELOC accounts can be used for nearly any purpose. Checks can be written for bills, swipes at POS machines for regular purchases, and even to pay for items online. Credit cards offer purchase checks, but usually tack on extra fees, that feature comes standard with a HELOC.
Although HELOCs and credit cards both serve the same financing purpose, their bottom line in costs is very different. For most intents and purposes, HELOCs win over credit cards.
Long term debt
For long term debt, HELOCs are the clear winner. HELOCs have interest rates half that of credit cards, featuring much better repayment terms. The payment options on HELOCs allow you to make payments for up to 30 years. In contrast, credit cards do not have much of a repayment option, but charge high interest.
Short term debt
For balances that will be immediately paid off, credit cards have the advantage. HELOCs do not have the same grace period as credit cards, and interest is charged instantly. Credit cards have up to 55 days of free interest, and thus, for very short term debt, a credit card wins.
Availability
For home owners, a HELOC can be easy to get. However, those who do not have sufficient equity in their home can still obtain a credit card. Obtaining a credit card is easy for even people with bad credit. Credit cards win this category handily.
Convenience
This column would have gone to credit cards in the past, but with the invention of HELOC cards, HELOCs are the clear winners. HELOC cards are very similar to credit cards except they work on the same payment terms as a HELOC. One swipe of the card can still buy everything you want, and the draw checks for HELOCs are much cheaper in fees and others costs than credit cards. HELOCs take the cake for convenience.
Credit lines
For the average person, a HELOC gives more credit than a credit card. Home equity loans are given to the amount up to 85% of your home equity. Credit cards are generally low limit unless you are very wealthy, but if you are in that category, you most likely already have a lot of home equity.
Fees and costs
Credit cards are much cheaper to maintain than the average HELOC. Credit cards now come very standard with the same fees and maintenance costs. HELOCs can be as pricey or as cheap as the lender will allow. Annual fees on HELOCs are usually higher than credit cards, but this is cancelled by the difference in credit line. However, for most people, a credit card is cheaper.
Flexibility
HELOCs by far win in this category. A HELOC can be used for anything, even high priced items, whereas credit card companies look down on high balances. Your HELOC accounts can be used for nearly any purpose. Checks can be written for bills, swipes at POS machines for regular purchases, and even to pay for items online. Credit cards offer purchase checks, but usually tack on extra fees, that feature comes standard with a HELOC.
Although HELOCs and credit cards both serve the same financing purpose, their bottom line in costs is very different. For most intents and purposes, HELOCs win over credit cards.
