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If you are considering financial help then you might be considering the two viable approaches personal loan vs credit card. Although both of the financing options will get you money but they offer different terms and conditions. As per your financial standings, one might be better option than the other so it is important to critically analyze the differences between personal loan vs credit card.

As through both the personal loan and credit card you receive money from the lender on a particular interest rate. For personal loan the interest rate is dependent on the credit history , credit score , debt to income ratio and various other factors . While the interest rate of credit card varies from issuer and is particularly determined by the credit score. Let’s further explore in depth the basic differences between the personal loan vs credit card.

Personal Loan vs Credit Card – Key Takeaways

Personal Loan vs Credit Card – Key Takeaways
  •  Personal loan will let you get cash upfront and then spread out the cost of the borrowing over a specific duration of time
  •  Credit cards will offer you the advantage to gain multiple perks such as travel rewards , sign up bonuses, and other rewards across a wide swath of spending categories.
  •  Personal loans c have lower interest rate as compared to the credit cards due to structured payments

Personal Loan vs Credit Card – Fact Summary

FeaturePersonal LoanCredit Card
How they workA personal loan provides you with a lump sum of money that you repay over a set period of time, typically in fixed monthly installments.A credit card gives you a revolving line of credit that you can borrow against up to your credit limit. You only pay interest on the outstanding balance.
Average APR9.65%16.28%
How to use themPersonal loans can be used for a variety of purposes, such as consolidating debt, making a major purchase, or financing home improvements.Credit cards can be used for everyday purchases, travel, and other expenses.
Monthly paymentsPersonal loans have fixed monthly payments, which makes it easy to budget for your repayment.Credit card payments can vary depending on how much you spend each month.
Credit building abilitiesBoth personal loans and credit cards can help you build credit if you make your payments on time and in full. However, credit cards can be riskier for people with poor credit history, as it can be easy to overspend.

Personal Loan vs Credit Card – Key Differences

Personal Loan vs Credit Card – Key Differences

 The major difference between personal loan vs credit card is that they involve different types of credit . Personal loans offer a huge sum of money and you pay down a specific amount of money until the balance reaches zero. While on the other hand, the credit card gives you a line of credit and a revolving balance, which means that you can borrow money when you need it and the payments are based on your outstanding balance at a particular time. The three crucial differences for the personal loans and credit cards are listed in the form of a table

  Credit cards Personal loan
 Repayment Revolving payments with balance due each monthOffers fixed payments with the prescribed terms and conditions
 Fees Loans typically charge origination fee, late payment fee Credit cards charge foreign transaction fee, annual fee and also late payment fees
 Interest Rates Offers fixed interest rate until the loan is fully paid Variable interest rate if you have the due balance to pay

 When to choose a personal loan

Personal loans are regarded as the best option when you are considering either a big purchases or want to consolidate debt with low-interest rates. People usually take personal loans in one of the following cases:

  •  If you are eager to get a low annual percentage rate then personal loans are the good option. In this way you make monthly payments more affordable and can easily budget all the other expenses
  •  If you want to consolidate high interest debt , then you can buy a high amount personal loan and make fixed payments over the course of years.
  •  If you want to finance a large purchase for instance home improvements and refurbishment that does not come in your budget, you can take a personal loan in this case
  •  If you are willing to pay the monthly payments over the loan terms , then you can choose personal loan

 Also few of the personal loan lenders let you pre-qualify for the loans to see the estimated APR without impacting the credit score. 

When to choose credit card

 Credit cards are usually for frequent and smaller expenses that you need to pay for quickly. People usually choose credit card in the following cases.

  •  If they are ready to pay off the balance in full each month. This way you can save a substantial amount of money that can be consumed through the interest rates on the late payments. If the balance is carried monthly than credit card issuer charges you penalty APR.
  •  In comparison for personal loan vs credit card, this one is for the smaller expenses. Credit cards offer rewards ion regular purchases like groceries and dining , so you can easily finance for the frequent expenses.
  •  Many credit cards offer 0% introductory APR which is the cheapest way to pay for the purchases . If you are considering the credit cards for big purchases , its is good to look for cards that offer 0% Introductory APR for a duration of 15-21 months

 Best 0% APR Credit Cards

Wells Fargo Reflect® Card is the top pick for the best 0% APR credit cards that offer introductory APR on purchases and balance transfers in the duration of 21 months.

Personal Loan vs Credit Card – Pros and Cons

Personal Loan vs Credit Card – Pros and Cons

 Pros of Personal loans

  •  Providing a viable funding source for the large purchases
  •  Carries a low-interest rate in comparison with credit cards
  •  Provides the funds in lump sum
  •  Fixed payments so easy to pay back
  •  Some lenders let you gain personal loan with a bad credit too

 Cons of Personal loans

  •  Charges the origination fees
  •  Does not provide credit after the full fledge payments
  •  It does not provide any kind of rewards

Pros of Credit Cards

  •  Offers ongoing revolving credit that only charges the interest rates when the funds are used
  •  There are various credit card options that offer 0% introductory APR for purchases
  •  People who have good credit standing offer increased credit limit

Cons of Credit Cards

  •  The interest rate is typically higher than the personal loans
  •  If the balances are not paid full each month than the additional APR will be charges

 Do you want to consolidate debt? Personal Loan vs Credit Card

 If you are looking for the viable approach to pay for the high interest credit card debt then there is no matter way to do it except the personal loans.

Best ways to consolidate credit card debt

 Once you have an average to good credit card standing, you have a higher chance for the approval of a personal loan. But with the fair credit score many of the lenders approve your personal loans but with stringent terms and conditions.

 Frequently Asked Questions

 Is it better to get personal loan or credit card?

 With your current financial standing and the way you want to spend the money of the funds determine the right choice for the two approaches personal loan vs credit card. If you want a lump sum of money with fixed repayments than loan is the best choice . On the other hand , for small purchases credit cards with 0% APR is a good option.

What is the major risk associated with the credit cards?

 One of the major risks that is associated with credit cards is debt accumulation. A single missed payment can cause a penalty APR which can cause a strain on your wallet.


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