Credit Loans

Personal Loans vs. Credit Cards: Which Is Better?

Thinking of borrowing money but not sure whether you want a personal loan or credit card? Deciding between personal loans vs. credit cards can be tough! Some pros and cons come with individual loans and credit cards. One could be the better option depending on why you need the funds, credit score, and credit history. 

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 sometimes offer more flexibility. 

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

Although personal loans and credit cards both 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 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 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. You can definitely use personal loans for medical bills. And with the right personal loan terms, you may be able to make your monthly payments more affordable, even if while paying interest.

Here are some expenses that work well for credit cards:

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 her, 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. 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 payments more manageable. An interest-free credit card is the way to go when consolidating debt.


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 can 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 the asset.

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 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 purchase 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 are more flexible for approval. At the same time, credit can be minimal at first if you don’t have steady income or good credit scores. The unique thing when you borrow money from a credit card is that a pay increase and timely payments can mean an increase in credit limit for access to more money.

Credit Card Fees, Possibly The Most Significant Disadvantage

Both personal loans and credit cards can come with origination fees and late fees. Credit cards can come with a few other costs that aren’t 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 mean the best deal. 

It is also crucial to keep in mind that any loan or credit card you sign up for are reported to the major credit bureaus. These debts will be on your credit report until paid off. 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.