Personal Loan vs. Cash-Out Refinance: Which Makes More Sense?

When you need money for a major expense, there may be more than one way to borrow it.

Maybe you're planning a home renovation. Maybe you're consolidating higher-interest debt, paying for a large family expense or handling an unexpected cost.

Two options homeowners often consider are:

• A personal loan

• A cash-out refinance

Both can give you access to funds, but they work very differently.

For homeowners in Prairie Village, Overland Park and throughout Johnson County, the better option depends on how much you need, how quickly you need it, your current mortgage, your available home equity and whether you want to use your home as collateral.

Here's what to consider before making a decision.

What Is a Personal Loan?

A personal loan allows you to borrow a set amount of money and repay it over an agreed period.

Depending on the loan, a personal loan may be unsecured, meaning it is not backed by your home or another specific asset.

That can make a personal loan attractive for expenses such as:

• Home improvements

• Debt consolidation

• Medical expenses

• Major purchases

• Unexpected repairs

• Moving expenses

• Weddings or other major life events

Rather than replacing your existing mortgage, a personal loan is a completely separate loan.

For someone who already has a mortgage they are happy with, that distinction can be important.

First National Bank offers personal and other consumer lending options to customers throughout Prairie Village, Overland Park, Johnson County and the greater Kansas City area.

What Is a Cash-Out Refinance?

A cash-out refinance works differently.

Instead of taking out a separate personal loan, you refinance your existing mortgage into a new, larger mortgage.

The new loan pays off your current mortgage, and you receive part of the difference in cash.

For example:

Suppose your home is worth $500,000 and you still owe $250,000 on your mortgage.

You may have substantial equity in the property.

If you qualify for a cash-out refinance, you may be able to replace that $250,000 mortgage with a larger loan and receive a portion of the additional borrowed amount in cash.

The Consumer Financial Protection Bureau describes a cash-out refinance as replacing an existing mortgage with a larger mortgage and receiving the difference in cash.

That money may then be used for purposes such as:

• Home improvements

• Debt consolidation

• Education expenses

• Large purchases

• Other significant financial needs

What's the Biggest Difference Between a Personal Loan and a Cash-Out Refinance?

The biggest difference is what you're borrowing against.

A personal loan is generally separate from your home.

A cash-out refinance uses your home equity and replaces your existing mortgage.

That creates several important differences.

Neither option is automatically better.

The right choice depends on your situation.

When Might a Personal Loan Make More Sense?

A personal loan may be worth considering when you need a defined amount of money without changing your existing mortgage.

This can be particularly important for homeowners who already have a favorable mortgage rate.

Imagine you bought or refinanced your home several years ago and your current mortgage has attractive terms.

You now need $20,000 for a kitchen renovation.

Refinancing your entire mortgage simply to access $20,000 may not always make financial sense.

A personal loan could allow you to finance the project while leaving the existing mortgage untouched.

Personal Loans Can Be Useful for Smaller Projects

The amount you need matters.

A cash-out refinance involves changing a large mortgage loan.

If you're borrowing for a smaller expense, a separate loan may be simpler.

For example, homeowners may consider a personal loan for:

• New flooring

• HVAC replacement

• A bathroom renovation

• New appliances

• Landscaping

• Smaller home projects

The important question is not simply:

"Which loan has the lower interest rate?"

You should consider the total cost of borrowing, loan term, fees and how the loan affects your broader finances.

When Might a Cash-Out Refinance Make Sense?

A cash-out refinance may make more sense when you need access to a larger amount of money and have substantial equity in your home.

It may be considered for expenses such as:

• Major home renovations

• Large-scale remodeling

• Debt consolidation

• Education expenses

• Significant one-time financial needs

Cash-out refinancing can be particularly appealing when the new mortgage terms also work well for your overall financial situation.

But refinancing is not just about getting cash.

You are replacing your entire mortgage.

That means you should evaluate:

• Your current mortgage interest rate

• The new interest rate

• Closing costs

• New loan balance

• Monthly payment

• Length of the new mortgage

• Total interest paid over time

Your Current Mortgage Rate Matters

This is one of the biggest considerations in today's lending environment.

If you currently have a very low mortgage rate, replacing it with a higher-rate loan could make borrowing substantially more expensive.

The CFPB specifically advises homeowners considering a cash-out refinance to compare the new mortgage rate with the rate on their existing mortgage and to account for closing costs.

In that situation, a personal loan or another financing option may deserve a closer look.

On the other hand, if your current mortgage terms are less favorable or your financial situation has changed, refinancing may still make sense.

This is why the answer depends on the borrower rather than on a single rule.

How Much Home Equity Do You Have?

A cash-out refinance requires equity.

Home equity is essentially:

Current home value – amount you still owe = home equity

If your Prairie Village home is worth $600,000 and you owe $300,000, you have approximately $300,000 in gross equity before considering lending requirements and transaction costs.

That doesn't necessarily mean you can borrow the entire $300,000.

Lenders generally have limits on how much of the home's value can be financed, and qualification depends on factors such as credit, income and debt.

If you don't have enough available equity—or simply don't want to borrow against your home—a personal loan may be the more relevant option.

Is a Cash-Out Refinance Riskier Than a Personal Loan?

One important distinction is that a cash-out refinance is secured by your home.

That matters.

The CFPB has noted that converting other debt into mortgage debt can create additional risk because the home is collateral for the mortgage.

A personal loan that isn't secured by the home does not generally create that same direct risk to the property.

That doesn't make personal loans risk-free.

Any debt needs to be repaid according to its terms.

But understanding whether your home is securing the loan should be part of the decision.

What About Using Either Option to Consolidate Debt?

Debt consolidation is one reason people consider both personal loans and cash-out refinances.

Suppose you have several credit cards carrying balances.

Instead of managing multiple payments and interest rates, you may be able to consolidate those debts into one loan.

Potential advantages can include:

• Fewer monthly payments

• More predictable repayment

• Potentially lower interest costs

• A clearer payoff timeline

But consolidation only works if you address the spending that created the debt in the first place.

Paying off credit cards and then building the balances back up can leave you with both the new loan and additional card debt.

That is especially important with a cash-out refinance because you're moving unsecured debts into debt secured by your home.

Cash-Out Refinance for Home Improvements

Home improvements are another common reason homeowners tap equity.

The CFPB notes that borrowers commonly use cash-out refinance proceeds for purposes including home repairs and paying down other debt.

For Prairie Village and Overland Park homeowners, that could mean:

• Kitchen renovation

• Finished basement

• Home addition

• New outdoor living space

• Major mechanical upgrades

• Whole-home renovation

A larger project may make tapping home equity worth exploring.

But homeowners should compare the cost of refinancing the entire mortgage with alternative ways to finance the project.

Personal Loans for Home Improvements

Not every remodel requires tapping home equity.

A personal loan may be appropriate for a smaller project when you:

• Need a specific amount

• Want predictable monthly payments

• Prefer a shorter loan term

• Don't want to refinance your current mortgage

• Don't want the loan secured by your home

This can be especially relevant for homeowners who locked in favorable mortgage rates in previous years.

Personal Loans in Prairie Village

Prairie Village homeowners often live in established homes where updates and renovations are common.

A personal loan might help finance projects such as:

• Updated kitchens

• Bathroom renovations

• Windows

• Flooring

• HVAC replacement

• Outdoor improvements

First National Bank has a physical location in Prairie Village at 4200 W. 83rd Street, making it convenient for Johnson County residents who prefer to discuss borrowing options with a local banker.

If you're looking for a personal loan in Prairie Village, start by explaining what you're trying to accomplish rather than assuming one particular loan is automatically the best solution.

Personal Loans for Overland Park Residents

Overland Park homeowners face many of the same decisions.

Maybe you're improving an older home near Downtown Overland Park.

Maybe you're renovating a newer home elsewhere in Johnson County.

Or perhaps your need has nothing to do with the house at all.

First National Bank serves customers throughout Johnson County and the greater Kansas City area, including Overland Park, even though its nearest banking offices are in Prairie Village and Stilwell.

For someone researching a personal loan in Overland Park, working with a local lender can provide an opportunity to compare different borrowing strategies rather than filling out an anonymous online application without understanding the alternatives.

What About a Home Equity Loan?

A cash-out refinance and personal loan aren't your only choices.

A home equity loan is another option homeowners may consider.

A home equity loan lets you borrow against your home's equity without replacing your existing first mortgage.

That distinction can be particularly important if you already have favorable terms on your current mortgage.

First National Bank offers home equity lending along with mortgage refinancing and other home loan options.

Depending on your needs, comparing all three may make sense:

Personal Loan vs. Home Equity Loan vs. Cash-Out Refinance

Personal Loan vs. Home Equity Loan vs. Cash-Out Refinance

A simple way to think about them is:

Personal Loan

May work well when you want a separate loan and don't want to use your home as collateral.

Home Equity Loan

May work well when you want to tap home equity without replacing your existing mortgage.

Cash-Out Refinance

May work well when replacing your existing mortgage makes sense and you also want to access some of your available equity.

The actual rates, terms and qualification requirements will vary.

That's why the best first step is often discussing what you need the money for, how much you need and how quickly you want to repay it.

Questions to Ask Before Choosing a Loan

Before applying, ask yourself:

How much money do I actually need?

Borrowing $15,000 creates a different decision than borrowing $100,000.

How long do I want to repay it?

A shorter repayment period usually means larger monthly payments but may reduce the total amount of interest paid.

What is my current mortgage rate?

Don't give up favorable mortgage terms without understanding the long-term cost.

How much equity do I have?

This affects whether home-equity options are available.

Am I comfortable securing the loan with my house?

This is an important distinction between different lending products.

What are the fees and closing costs?

Don't compare loans based only on advertised interest rates.

What will the total monthly payment be?

Make sure the payment works comfortably within your household budget.

Does a Cash-Out Refinance Require Closing Costs?

Typically, yes.

A cash-out refinance is a new mortgage, so borrowers may encounter many of the same types of closing costs associated with obtaining a mortgage.

The CFPB advises borrowers to consider both the new interest rate and closing costs when comparing a cash-out refinance with alternatives such as a HELOC or other financing.

That is one reason refinancing may make more sense for a larger financial need than a relatively small expense.

Is a Personal Loan Faster Than a Cash-Out Refinance?

Potentially.

Because a cash-out refinance is a mortgage transaction, it typically involves a more extensive process.

Depending on the loan, that may include:

• Property valuation

• Income documentation

• Credit review

• Mortgage disclosures

• Underwriting

• Closing

A personal loan may involve fewer steps because you aren't refinancing real estate.

Actual timing varies by borrower and loan type.

Is a Personal Loan Better Than Using a Credit Card?

For a significant expense, it may be worth comparing both.

Credit cards can be convenient, but carrying a large balance at a high interest rate can make repayment expensive.

A personal loan can offer a defined loan amount, payment and repayment schedule.

Again, compare the total borrowing cost, not simply the size of the monthly payment.

Frequently Asked Questions About Personal Loans and Cash-Out Refinancing

Is a personal loan or cash-out refinance better for home improvements?

It depends primarily on the size of the project, your current mortgage terms, available equity and repayment goals. A smaller project may be well suited to a personal loan, while a larger renovation may make home-equity financing worth considering.

Can I get a personal loan without owning a home?

Yes. Unlike a cash-out refinance or home equity loan, a personal loan does not necessarily require homeownership.

Do I need equity for a personal loan?

Not necessarily. Home equity is relevant to loans secured by your property, including cash-out refinancing and home equity loans.

Does a cash-out refinance change my mortgage rate?

Yes. A cash-out refinance replaces the existing mortgage with a new loan, so the new loan will have its own rate and terms.

Can I keep my current mortgage and still borrow against my equity?

Potentially. A home equity loan can allow qualified homeowners to borrow against equity while keeping their existing first mortgage in place.

Can I use a personal loan to consolidate credit cards?

Personal loans may be used for debt consolidation depending on the loan terms. Before consolidating debt, compare the new rate, fees, repayment period and total borrowing cost.

Where can I get a personal loan near Prairie Village?

First National Bank has a Prairie Village banking location at 4200 W. 83rd Street and provides personal lending services to customers throughout Johnson County.

Does First National Bank serve Overland Park?

Yes. First National Bank serves customers throughout Johnson County and the greater Kansas City area from banking locations including Prairie Village and Stilwell.

Start With the Goal, Not the Loan

There isn't one borrowing option that's right for everyone.

The better question isn't:

"Should I get a personal loan or refinance my house?"

It's:

"What is the most practical way to borrow the amount I need without creating unnecessary cost or risk?"

For one borrower, that could be a personal loan.

For another, it could be a home equity loan.

For someone else, a cash-out refinance may fit the bigger financial picture.

First National Bank helps customers throughout Prairie Village, Overland Park, Stilwell, Leawood, Olathe, Louisburg, Johnson County and the greater Kansas City area evaluate personal loans, home equity options, mortgage refinancing and other lending needs.

Instead of choosing a loan based only on an online rate or monthly-payment calculator, talk with a local lender about the full picture.

Contact First National Bank to discuss your borrowing goals and compare the options that may be available to you.

Local Banking for Louisburg, Stilwell, Prairie Village & the Kansas City Area

At First National Bank, community banking means more than offering accounts and loans. It means working with people who understand the local area and can help you make financial decisions with confidence. With locations in Louisburg, Stilwell, and Prairie Village, we proudly serve individuals, families, farmers, and businesses throughout Miami County, Johnson County, Cass County, and the greater Kansas City area.

Whether you’re looking for personal loans, business financing, checking or savings accounts, CDs and IRAs, or cash management services, our team can help you find an option that fits your goals. We also offer home financing solutions, including mortgages, construction loans, home equity loans, refinancing, second mortgages, and swing loans.

If you prefer working with a local bank where you can speak with real people who know the communities they serve, First National Bank is here to help. Visit one of our branches or contact us today to talk through your banking, borrowing, or business financing needs and find the next step that makes sense for you.