Credit Card Or Personal Loan: What Should I Choose?

Credit Score

When you need to borrow money to consolidate large debt or cover an expense, you have two options available: personal loans and credit cards. This depends upon how much money you need, your credit score, and how much time you need to repay your debt.

Let’s take a look at the difference between personal loans and credit cards and determine which one is the best option for you.

What is a Personal Loan?

A personal loan allows you to borrow money for reasons like debt consolidation, emergency expenses, and home renovations. You can get a personal loan from a bank, online lender, or credit union. A personal loan is also known as an installment loan where you get money in a lump sum and make fixed monthly payments over a specific period to return it. When you apply for a personal loan, the lender uses your credit report and history to determine whether you qualify and at what interest rate.  Interest rates on personal loans generally range from 6% to 36%, and borrowers with a good or better credit might get qualified for a rate at the low end of that range.

Personal loans are a good option if you:

  • Want to consolidate high-interest debts
  • Have good to excellent credit
  • Need to finance a large expense
  • Can make monthly payments over the loan term.

What is a Credit Card?

A credit card is a thin rectangular piece of plastic which is issued by a financial company, that enables cardholders to borrow funds from financial institutions with which they can pay for goods and services. However, there is a condition imposed on the cardholders that they need to pay back the borrowed money including added interest, as well as any additional agreed-upon charges.

A credit card can be an exorbitant form of financing if you don’t pay off the balance monthly or qualify for a card with a 0% interest promotional rate. Also, credit cards mostly have double-digit interest rates, and carrying a high balance can adversely affect your credit score.

Credit cards are a good option if you:

  • Need to finance smaller expenses
  • Can pay off your balance each month
  • Qualify for a 0% promotional offer.

Pros and cons of personal loans

  • Personal loans interest rates generally low. They typically offer a fixed interest rate that means your payment will stay the same over time.
  • Unlike credit cards, personal loans do not allow you to continuously borrow more money. Hence, you will know exactly when you will be done with your debt.
  • Using a personal loan can help you in paying off your credit card debt which in turn lowers your credit utilization ratio.
  • The higher monthly payments of a personal loan can be difficult for individuals with limited disposable income.
  • Some personal loans can charge origination fees as well as prepayment penalties.

Pros and cons of credit cards

  • If you already have a credit card with funds available, you can borrow money immediately. Also, the application process tends to be less troublesome than the personal loan process.
  • Many companies offer 0% introductory rates on new cards or balance transfers. Hence if you can pay the balance in that period (6-12 months), you can avoid paying interest altogether.
  • If your credit card is in bad shape, it can be easier to qualify for a secured credit card than an unsecured card or personal loan.
  • If you need actual cash, you need to pay an additional fee on a credit card cash advance.
  • Many credit cards offer variable interest rates, which means the rate is tied to another interest rate (eg: prime rate) and can increase over time, taking your payments and total interest cost with it.

Personal loan or credit card: How to choose?

If you are still not sure which one to choose, then here are a few questions that you should ask yourself:

How much do you need to borrow?

A smaller sum is typically faster to pay off that makes credit cards an easy option, especially if you have one with funds available.

How long will it take you to pay off the debt?

If the tenure period is more than a few months, then a personal loan can help you save money.

How good is your credit?

With a good credit score, you might be able to score a lower rate with a personal loan but you can also qualify for a 0% promotional interest rate on a new credit card. A loan repayment calculator can help you figure out which option is the best for you.

Do you need cash?

You should keep this in mind that credit card cash advances usually come with additional fees.

Do you have the habit of overspending?

If you have the habit of overspending then a credit card may keep you in a never-ending cycle of debt unless you learn to control yourself. You can go with personal loan option if you need money for your for purchase new car, home renovations, marriage and business. You have pay less interest to bank as compared to credit card.


Credit card and personal loan are the best option for fulfill your finance expenses but there are some limitations of these types of loan. If you think you can’t pay it then its not necessary to take loan from the Bank.

Author Bio:
shruti gargShruti Garg is an online entrepreneur, advisor, and author. She is passionate about market research and loves to write on topics Market Research, digital marketing, Health, Finance, Information and opinions to success in life.