An equity loan is a secured loan, secured by a source of equity, normally in your home. With an equity loan, your collateral is at risk if you miss your payments, but lower interest rates may make it easier to get ahead.
An equity loan is a loan secured by equity, meaning your assets. If you have an asset worth $100 that you own free and clear, you have $100 in equity. If that asset is already securing a $50 loan, you have $50 in equity. If a loan is secured, the lender has a recourse (cease the asset and sell it) if you don't make your payments, which lets them loan you money at a cheaper rate. This is why a home equity loan may offer rates from 7% - 10% while a personal loan may only be offered at 15% - 20%.
The most common equity loan is the home equity loan. As houses tend to appreciate over time, homeowners find that they will have a substantial amount of home equity after a few years in their house. Homeowners that bought before the housing boom may find that their house has doubled in value, giving them substantial equity. If you are paying 30% interest rates on credit cards with a 4% monthly payment, an equity loan at 8% with a 1% monthly payment may seem like a gift from heaven. The equity loan will save them interest expenses, reduce their monthly expenses, letting them enjoy their life and repaying their debts sooner.
There is no such think as a free lunch, and an equity loan carries serious risk. If you stop paying your credit card company, they can raise the interest rate that they are charging you, but if you aren't paying, it doesn't cost you anything in the short term. While they can harass you, send you to collections, and sue you, they can't come and take your property without a court order, and even then bankruptcy may save you. With a secured loan, they can foreclose on the property, costing your your house and possessions.
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