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Personal Loans vs Home Equity

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The world of credit can be confusing. Here we explore the difference between personal loans and home equity and hope that it is helpful to you.

What is a personal loan?

A personal loan is generally unsecured credit that is provided by a credit provider, and is repayable over an agreed term and interest rate. Personal loans range in amount and term. The amount you are approved for depends on several criteria including your credit profile, earnings and ability to repay.

Applying for a personal loan online is quick and easy, and the flexibility of this credit makes it a viable option to use for many reasons, whether you want to consolidate debts into one payment, or enjoy a much-needed holiday, a personal loan can be used for anything.

What is home equity?

If you have a bond, home equity is the difference between the outstanding loan balance on your bond and the property's market value. This means that your equity can increase as the property value increases, or alternatively as you pay off your home loan. Home equity is essentially the portion of your property that has been paid off, and it is likely to increase over time as the property value increases.

You can borrow against this home equity and your home is usually used to secure the loan.

Personal Loan vs Home Equity

These two types of credit are vastly different from one another, but offer some similarities as the funds can generally be used for any purpose. One of the main differences is that a personal loan is unsecured, whereas your home equity is money borrowed against your home. When looking to deal with current debts, or smaller expenses, a personal loan is an easy option to consider as it can be paid over a shorter term. Your equity could be used for large home renovations or major costs. Both are flexible and the choice is always yours.

If you remain unsure about which credit option is best suited to your needs, rather speak to a professional financial consultant before coming to a final decision.


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DirectAxis is a business unit of FirstRand Bank Limited, an Authorised Financial Services and Registered Credit Provider, NCRCP20. Direct Axis SA (Pty) Ltd, Reg no. 1995/006077/07, an authorised Financial Services Provider, FSP7249 & FSP5. 108 De Waal Road, Diep River 7800.

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Loan repayment terms range from 24 to 72 months. The maximum interest rate with regards to a DirectAxis Personal Loan is 24.50% per annum (compounded monthly). Your rate and initiation fee will be determined according to your personal risk profile.

An illustrative example of a loan at an interest rate of 24.50% per annum would be: Loan amount R50 000 plus a once-off initiation fee of R1 207.50 and a monthly admin fee of R69.00, over 72 months.

The total cost of the loan will be R 103 155.57 which is a maximum Annual Percentage Rate (APR) of 27.76%.