Personal loans vs. credit cards

Personal loans are a type of funding where borrowers receive a lump sum of money, and repay the balance, plus interest and fees, over a predetermined repayment period. A credit card is a line of revolving credit where borrowers can spend against a credit limit each month. 

While personal loans and revolving lines of credit can be great financial tools to help you out during a financial emergency, they both have pros and cons all borrowers should be aware of. Usually, personal loans may be best suited for: 

  • Significant financial emergencies where no other financial options are available
  • Planned expenses that will take more than a few weeks to pay off 

On the other hand, a credit card may be useful for: 

  • Small expenses you can repay quickly
  • Recurring expenses you have the means to cover right away

Thinking of borrowing money but not sure whether you want a personal loan or credit card? Deciding between personal loan vs. credit cards can be tough! One could be the better option depending on why you need the funds, your current credit score, or your credit history. 

Here, you will learn about personal installment loans vs. credit cards, and which option may work best for you when you need to borrow money. 

Breakdown of Personal Loan versus Credit Cards

Funding TypeInterest Rates Repayment Terms Process for ApplyingAvg. Loan/Credit AmountsOther Information 
Short-Term Personal LoansHighVariesOnline/In-person$100 to $2,500Often no hard credit check required
Long-Term Personal LoansLow to Medium1 to 7 yearsOnline/In-person$1,000 to $100,000Good credit often required
Bad Credit Personal LoansHighVariesOnline/In-personUp to $5,000Designed for those with poor credit
Bank Personal LoansLow to Medium 1 to 7 yearsOnline/In-person$1,000 to $50,000Offered by traditional banks
Quick Cash Personal LoansVery High2 weeks to 6 monthsOnline/In-person$100 to $1,500Quick approval, often within a day 
Secured Credit CardMedium to HighRevolvingOnline/In-personSecured by a depositCan help build or rebuild credit 
Traditional Credit CardMediumRevolvingOnline/In-personVaries by credit scoreOften come with rewards, cash back, etc. 
Business Credit CardLow to MediumRevolvingOnline/In-personHigher than personal cardsDesigned for business expenses, rewards 
Personal Line of CreditLow to MediumRevolvingOnline/In-person$1,000 to $50,000Flexible borrowing option
Balance Transfer Credit CardLow to 0% intro rate, then Medium to HighRevolvingOnline/In-personVaries by credit score Designed to consolidate and pay off debt from other cards, often has a promotional period with low or 0% interest 

What Expenses Are Best for Personal Loans vs. Credit Cards?

Although both personal loans and credit cards may work well for short-term emergencies, each has its best uses. Credit cards are best used for more minor recurring charges, while a personal loan may be better for a one-time lump sum expense that costs more than a few hundred dollars. Credit card interest rates can be higher than some personal loans, especially if you take longer to repay. 

Here are some examples of expenses and purchases that may work best for personal loans:

Extensive Home Renovations or Repairs

Personal loans will be the better option for home repairs or if you have a significant home improvement project in mind. A home equity loan or a home renovation loan are two types of personal loans made precisely for those expenses.

Businesses Expenses

Whether you are a start-up or an established small business, a personal loan will make more sense to use for costs. Business loans can come with all kinds of repayment terms, and unlike a few personal loan types, you don’t need excellent credit. Business loans can cover equipment, employee training and hiring, benefits, rentals, and more.

Buying a Car or a Making a Large Purchase

When buying a car from a dealership, you will most likely be offered some type of financing through a personal loan or auto loan. These personal loans often have unique benefits that you may not get with credit cards or other private lenders. These benefits can also be a part of furniture sales and electronics. And so, before taking out a credit for a large purchase, check out financing from the retailer or manufacturer.

Paying for Costly Medical Emergencies

It may be helpful to know how most people pay for medical care. However, even with insurance and savings, medical bills can be expensive, and if you cannot afford monthly payments billed to you by your provider, you will have to look elsewhere. And with the right personal loan terms, you may be able to make your monthly payments more affordable, even while paying interest.

Here are some expenses that may work well for lines of credit:

Recurring Monthly Bills

An easy way to make sure you pay your bills on time while also keeping track of how much you are spending is using your credit card to pay for fixed monthly payments. From here, repaying the credit card balance acquired as soon as possible is the best approach. Utilities, car payments, groceries can all be taken care of with a credit card. You will also get rewards for these everyday purchases with many credit cards.

Paying off Credit Card Debt or Personal Loan Debt

One unique aspect of credit cards is that you may find 0% balance transfer cards designed for paying off debts. Through these introductory interest rates, you may be able to pay off any outstanding credit card debt or loans while you save money. This process is also known as debt consolidation or balance transfers. It works well for those with multiple high-interest debts—as it can save money while making monthly loan payments more manageable. 


There are a variety of credit cards that offer rewards for traveling. These rewards can include free flights, hotel stays, car rentals, and upgrades with your flight. And in most cases, because travel is only a few thousand dollars, it makes sense to take advantage of these rewards.

Knowing what kinds of purchases personal loans vs. credit cards work best for is one part of being smart with your money and making it work for you. 

There are also general key differences between credit cards and personal loans that can help you determine which option is best.

Some Advantages and Disadvantages That Can Come With Personal Loans

Most personal loans can be a good option for those with a good credit score and steady income. With a good credit score, you may get lower interest rates, access a large amount of funds, and use them for a variety of large purchases or minor expenses.

However, suppose you have a bad credit score and need a personal loan. In that case, it will be challenging to avoid paying interest costs that are heavily skewed in ratio to the borrowed money. And in some cases, for poor credit, personal loan lenders may only okay secured loans that involve an asset. A secured loan often comes with high interest, and if you cannot make on-time payments or pay off the entire balance, the lender has the right to repossess the asset. In some situations, you may want to consider exploring no credit check loans as a potential alternative.

Pros and Cons with Credit Cards

One key difference when comparing personal loans vs. credit is that credit cards have revolving credit. Revolving credit allows you to borrow from your credit card every time you make payments. In comparison, a personal loan works by providing borrowers with a lump sum of funds that do not include a revolving line of credit. Credit cards may come with rewards for various expenses and can mean things like cash back or free perks.

However, when compared to personal loans, credit cards and credit card debt can come with higher interest rates and lead to a cycle of debt quicker. Falling into credit card debt is especially easy if you don’t have or know how to build good financial habits. A few things like on-time payments, keeping track of purchases and payment history, and knowing your credit limit are all habits that are essential when borrowing from credit cards. Not to mention having access to funds through revolving credit can lead to overspending—and ultimately a cycle of debt. And so before getting a credit card use the different methods, advice, and tools available to stop overspending before it happens. 

Credit card companies will look at your credit score and income when determining eligibility, credit amount, and interest rates. When comparing loans vs. credit cards, you will find that credit card lenders can be more flexible for approval. You may need a specific credit score to get a personal loan, unless you are looking for secured loans. Credit cards will also factor in credit score with eligibility but may sometimes offer more flexibility. 

Credit Card Fees: Possibly The Most Significant Disadvantage 

Both personal loans and credit cards can come with origination fees and late fees. But, credit cards can come with a few other costs that aren’t always present if you borrow money from a personal loan. Credit card debt can come with annual fees, variable interest, and compounding interest. Compounding interest will depend on the amount you spend for new purchases or emergency expenses.

Thinking About How a Personal Loan or Credit Card Will Impact Your Credit Score

Both credit cards and personal loans have their fair share of advantages and disadvantages. Whether you choose a personal loan or credit card, it is essential to look at several lenders. Finding the lower interest rate and the most manageable option will usually mean the best deal. 

It is also crucial to keep in mind that any loan or credit card you sign up for is most likely reported to the major credit bureaus. If you miss payments or default, these actions will stay on your credit report for a few years, and will negatively impact your credit score. Also, calculating and keeping track of your credit utilization ratio is crucial for responsibly borrowing funds in relation to your income and existing payments. While the general notion is that a consumer’s credit utilization ratio shouldn’t be above 30%, experts who reported to CNBC actually say to keep your utilization below 10% if you really want a good credit score.1

FAQ: Personal Loans and Credit Cards

What are the differences between personal loans and credit cards, and how do they impact my finances?

A personal loan can be categorized as either a secured or unsecured loan. They may also come with fixed repayment terms and interest rates, and are usually delivered in a lump sum. They’re suitable for larger, one-time expenses or debt consolidation. Credit cards are revolving lines of credit with variable interest rates, often higher than personal loans. Both can impact your credit score based on your repayment habits.

How do interest rates differ between personal loans, credit cards, and other loan types?

Personal loans usually offer lower interest rates than a credit card, especially if you have a good credit score. According to the Federal Reserve, as of Q2 of 2023 the average credit card plan interest rate was 22.16% while the average interest rate for a 24-month personal loan was 11.48%.2 The rate for a personal loan is often fixed, while credit cards typically have variable rates. Other loan types, like auto or mortgage loans, may have rates influenced by collateral and loan duration.

Where can I find the best personal loan or credit cards, especially if I have bad credit?

The best option depends on individual needs and credit scores. For personal loans, consider banks, credit unions, and online lenders. For lines of credit, compare offers from various credit card issuers and see if you are pre-approved or pre-qualified for a credit card. If you have bad credit, research lenders specializing in bad credit loans or secured credit cards.

What are the implications of personal installment loans and credit cards on my credit score and taxes?

Both personal installment loans and credit cards are reported to credit bureaus. Timely repayments boost your score, while missed payments harm it. Interest paid on both isn’t tax-deductible unless used for business or investment purposes.

How does a debt consolidation loan work, and can I use a personal loan for this purpose?

Debt consolidation loans combine multiple debts into one with a single payment, potentially at a lower interest rate. Personal loans are commonly used for this purpose, especially to consolidate high-interest credit card balances.

What should I know about fees and payment terms for personal installment loans and lines of credit?

Both can have late payment fees. Usually, personal installment loans have fixed repayment terms, while lines of credit usually require a minimum payment monthly. Lines of credit might also have annual fees and higher interest rates, especially for cash advances.

Are there alternatives to traditional personal loans, and how do they differ?

Alternatives include payday loans and unsecured loans. Payday loans are short-term with high interest and are not recommended due to their cost. Unsecured loans don’t require collateral, relying on creditworthiness.

How can I manage and avoid accumulating debt with lines of credit?

To avoid interest on credit card bills, pay the full balance monthly. Be aware of your credit limit, track spending, and consider balance transfer cards to consolidate debt at lower rates.

Who offers the longest terms on personal installment loans and how does this affect the interest I pay?

Traditional banks and credit unions often offer the longest terms for personal loans, sometimes extending up to 7 years or more. The length of the loan term can influence the interest rate; longer terms might have slightly higher rates due to the extended risk for lenders. However, a longer term also means you’ll pay interest over a more extended period, which can increase the total interest paid over the life of the loan, even if monthly installments are lower. It’s essential to compare both the term and the interest rate when considering a personal loan.

CreditNinja’s Thoughts on the Best Personal Loans and Credit Cards

If you find yourself dealing with some unexpected expenses, CreditNinja suggests you try a few non-loan options such as: 

  • Using funds from a savings account
  • Using funds from another stream of income (a second job, garage sale, etc.)
  • Asking a close friend or family member for a small loan 

You may also seek assistance through a CreditNinja personal installment loan if the above options aren’t available to you! CreditNinja has been a top rated lender since 2018, and seeks to be a more affordable solution from predatory loan products, like payday loans


  1. Here’s how much you should really spend on your credit card to get the best credit score | CNBC
  2. Federal Reserve Board – Consumer Credit – G.19
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