Personal Loan Vs Credit Card - Which is the Best for You?

20 Jan 2021

Introduction to the lending options

When you are in the market for making a major purchase, but you run out of the money, what will you do?

Borrowing money is the most viable method hence, which comes in two ways: Personal loan and credit card. While credit cards are ideal for short-term expenses, personal loans are a better choice for long-term expenses. Both the financial instruments have their pros and cons, but your decision of selecting between a personal loan and a credit card would depend on the following reasons:

  1. Your credit card score

  2. How much cash you want to borrow?

  3. How long will you take to repay it?


How does credit card work?

Credit cards are used widely as a convenient payment form, whether an individual buys online or offline. But if you neglect to pay the card balances in time, you will end up paying huge interest charges and the same gets accumulated over a period of time.

With credit cards, you do not need to pay your card balances all at one go. Instead, you are provided with the option of making only a minimum payment every month and allowing the interest to accumulate on your remaining credit card balance. This interest levied by the issuer of the card depends upon the Annual Percentage Rate (APR) of your card. For a card with a high APR, the interest would accumulate in a hurry. This is the reason why credit cards are known as “revolving debt”. Also, you may set off with a modest credit limit but the maximum amount you can borrow fluctuates depending on your monthly card spending and your repayments every month.

Almost all credit cards fall into the two basic categories:- secured credit cards and unsecured credit cards. We will discuss them in the sections below-

Unsecured Credit Cards: Credit card offers you a line of credit that is used for daily purchases, and monthly bill payment without any security. Many credit cards come with rewards, such as a discount on retail shopping, bonus points on travel and dining, and cash back at the gas station, grocery stores, restaurants, etc. The typical rewards range from 1% to 2 % of what do you spend. When you are using a credit card, you will need to make at least the minimum payment every month by the due date.

Credit card debt is a revolving debt. You have a certain monthly limit on your credit card depending on how much is your salary, how much you spend and how much you can repay. “Use a credit card for daily expenses or monthly bills - and pay the balance each month to avoid interest charges.” Generally, credit cards are unsecured and not backed by any collateral. A credit card is a convenient option if you need a constant cash flow for short term financing, but they have a generally higher interest rate.

Secured Credit Cards: There are usually unsecured credit cards available but you can take the secured credit cards also. Secured payment used as collateral on the account back up thse secured credit cards. These secured credit cards are backed by the secured payment used as collateral on the account. There are several benefits of secured credit card, and they are as:

  • If you don’t qualify for an unsecured credit card, secured card can be a good option as you look to improve your credit score.

  • You can make emergency purchases which might not be possible with unsecured ones.

  • Secured credit cards are available for lower fees than unsecured credit cards

  • Many of the lenders provide the interest on the security deposits also.

  • Easier approval than most desirable unsecured cards.


When to go for a Credit Card?

  • When you are absolutely sure that you can repay your balances on time and minimize your interest payments
  • If you need the flexibility of having to pay a minimum amount, but may even pay the entire balance amount every month.
  • If you are having a tough time to qualify for a personal loan
  • If you do not want to pledge a collateral.


How does a personal loan work?

A personal loan is the type of unsecured loan (signature loan) which helps you meet your current financial needs without any security. It is given on borrower’s credit card history and their capability to return the money from their personal income at a fixed interval of time. If you have a good credit score, you can get the personal loan in a couple of days. Personal loans nowadays are planned in such a way that it will be budget friendly. You can get them at the fixed interest rate and for the fixed monthly installments. The rates of interest are subjected to vary from lender to lender.

There is no hard and fast rule that you need a perfect credit score to get a decent amount of loan. Even those people who have the average to bad credit score can explore the options and get the best deal out of it. You can take the personal loan for a short period of time which is usually between two to five years. The time of this loan is fixed and cannot change like a credit card. Mostly personal loans have the limit from $1000 to $50,000 depending on the bank/ lender, your need and credit score. Each bank has its own criteria and limit to provide personal loans.


Difference between Personal loan and credit card

There are many differences between the personal loan and credit cards regarding advantages and disadvantages also, but here we have the consolidated table to give you the idea how both of them work.

S. No

Personal loan

Credit Card


You cannot increase your loan amount once it gets sanctioned.

You can take as much loan until your card limit is maxed out


Borrowing limit can be up to $100,000

Borrowing limit can be high as $50,000


The interest rate is fixed according to individual financial firms.

The interest rates are variable.


Lower interest rate

Interest rates are usually higher than personal loans.


Funds disbursement will be lump sum upon approval.

Funds can be taken out at any time according to your need. (Cash advances are also available).


Pros and Cons of Personal loan and credit card

In terms of Personal loan:


  • There is no restriction as to what the loan amount can be used for. You can use your personal loan for your personal expenditure.

  • It will come with lower interest rates as compared to credit cards, i.e. low.

  • If you have good credit card score, you can borrow up to $100,000.

  • Affordable monthly repayments according to your convenience.

  • Good for long-term purposes


  • The minimum loan period means that you have to carry the debt for minimum one year or more.

  • It will take minimum two to three days for process.

  • Includes documentation.

  • In some cases, payments are inflexible (which means you cannot pay before the fixed period).

In terms of Credit Card:


  • You can use the credit card for immediate purchase according to your need.

  • Credit cards come along with specific rewards points depending on financial firms.

  • It is a convenient option if you need a constant cash flow.

  • No need to undergo unnecessary documentation.

  • Interest- free grace period is available.

  • The credit amount is transferred at any time.

  • Good for short-term purchases.


  • A credit card usually carries higher interest rates.

  • Revolving credit makes it easy to spend beyond your limits.

  • If you need the cash advance, typically you should pay two to four percent.


Want to consolidate your debt? Here is a comparison of personal loan and credit card

Both personal loans and credit cards can be used as a useful tool to consolidate multiple debts into a single one. If you have a good credit and you have the capacity to repay your debts quickly enough, a balance transfer credit card is the best choice for you. Some of the best credit cards offer 0% introductory APR which allows you to shift your existing high-interest debt to a low-interest card.

You can make a plan to repay the entire balance before the expiry of the 0% rate and save a lot of money. Without such an arrangement, you would end up paying a lot of interest on the remaining balance, in addition to the retroactive interest on the initial balance. Although some cards levy a fee on balance transfers in the range of 1%-5 %, some credit cards do not charge a single penny on such transfers.

If you need more time to repay your monthly debt or need help to be on top of handling your debts, you should opt for a personal loan where you need to make fixed payments every month. A proper debt consolidation loan will be of great help if you manage to get a lower rate of interest than what you are paying on your debt.

However, personal loans and credit cards are treated differently by credit bureaus when they reflect them on credit reports. The credit scoring formulas calculate how much of the revolving credit is used by you. If you have a credit utilization ratio of more than 30 %, your credit score goes for a toss. Personal loans are treated as installment debts. However, when you move a credit card balance to an existing installment loan, your credit utilization ratio gets reduced.  


Best Credit cards for the upcoming Year 2019

Here we provide you with the list of best credit cards with comparative analysis to buy the best and suitable product as per your need. This is the list which you can analyze according to your need and make the best choice out of it to get it in 2019.


Credit Card

Regular APR

Annual Fees

Recommended Credit Score


Chase Sapphire Preferred

17.99% - 24.99%

$0 for first year, then $95

690 – 850


Discover it

13.99% - 24.99%


690 – 850


Citi Simplicity

16.24% - 26.24%


690 – 850



14.99% - 24.99%


690 – 850


Capital one QuickSilver

15.24% - 25.24%


690 – 850


Blue Cash Preferred – card from American Express

15.24% - 26.24%


690 – 850


Chase Sapphire Reserve

17.99% - 24.99%


720 – 850


Bank of America Premium Rewards

17.99% - 24.99%


690 – 850


Best Personal loan companies of 2018

U.S. News evaluated personal loan companies on the basis of eligibility, loan term, fees, repayment method, and some additional features. On the basis of above criteria the best companies which provide low- interest personal loans are:


Personal Loan Company

Loan amount

Loan Period

Credit Card score



$5000 - $100,000

2 -7 years

Not been disclosed



$5000 - $100,000

3 -7 years




$5000 - $75,000

Up to 5 years




$2500 - $35,000

3 -7 years




$2000 - $25,000

2 - 4 years




$1000 - $40,000

3 - 5 years




$1000 - $10,000

0.5 – 5 years

Not been disclosed



$7500 - $35,000

2 - 5 years



Personal Loan Calculator

Once you are into the discussion of taking a personal loan or not you want to know the amount you need to repay. Although low-interest personal loans are available, you need to compare interest rate from the various lenders, find the right lender, make a plan for your loan, and secure the best deal.  How to use a personal loan calculator:

Start the calculator by entering the amount how much you want to borrow. Then follow the steps:

  • Enter the loan amount and your payback period in years or months.

  • Calculate the ideal interest rate on your loan amount.

  • Finally, you can see how much you need to pay as principal and interest.

Once you have stimulated different scenarios with the personal loan calculator, compare your best loan offers from various lenders.


Using a personal loan or credit card to consolidate debt

Credit cards and personal loans can be used, to sum up the multiple debts into a single payment. It helps you in simplifying your monthly payments, and if you find the lower interest rate, you can save your money as well. There are two main ways to roll multiple debts into a single payment, and they are as:

  1. Debt consolidation loans: These are the term loans used to pay off debt at the lower interest rates. Here the lender either offers you the money to pay back your debt or, asks for your payment information to do it for you.

  2. Balance transfer credit cards: This option allows you to transfer all the credit card debt into a new card with the lower interest rates. They usually charge a one-time transfer fee, other than annual fees, and offer initial fees starting from as low as 0%.


The bottom line: Personal loans vs. Credit cards: Which one is right for you?

There is not a single answer to this problem because, in some situations, a personal loan can be the best bet and in others a credit card. So as per your need, you need to answer the following questions to help decide which product works for you.

  1. What do you need the funds for?

  2. How do you manage your repayments?

  3. Are you consolidating debts

  4. How much amount you are looking to borrow?

  5. For how long do you need the funds?

Once you have the answer for all the questions, you can make the right choice whether to go for personal loans or credit cards.

Personal loans and credit cards are two types of lending that both offer appealing advantages and some striking drawbacks. Which you pick is at last up to you, and many individuals have utilized both at different points for various purposes. Make sure to contrast your alternatives to make an informed decision.

That said, you get the cash according to your decision and prerequisite without loaning it from your relatives or companions and getting embarrassed. So you have your choice of personal loan or credit cards to satisfy your money related dreams.

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