Personal Loans vs Credit Cards: Which is a better option?

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Personal Loans and credit cards are both financial tools that help individuals get their desired amount of money for their credit with a fixed rate of interest. Even though both personal loans and credit cards serve the same purpose of providing funds to borrowers, there are many differences between them. This article will look at all the differences and similarities between personal loans and credit cards. It will help individuals decide whether to apply for a personal loan or choose a credit card.

Personal Loans

A financial institution or a bank as a lender provides a lump sum amount that has to be repaid over time, with fixed payments and a fixed period. The term of repayment is completely fixed and ranges from two to five years or sometimes more from when the borrower intends to apply for a personal loan. Personal loans do not offer the borrower access to ongoing funds like in the case of a credit cardholder. However, the personal loan interest rate can be lower, especially for borrowers with a good relationship with the lender and a high credit score.

The amount gained from a personal loan can be used for any purpose, whether it is to buy any products, appliances or even properties. These are unsecured loans and do not require the borrower to submit any kind of collateral or security deposit. To apply for personal loan, the borrower will be required to pay additional charges like the origination fees, prepayment or part payment fee and other charges. It adds up to their total costs.

Benefits of Personal Loan

A personal loan will benefit you in the following ways!

  • Personal loans provide very large funding for purchases and other important transactions.
  • They offer comparatively lower interest rates than credit cards.
  • They issue a one-time lump sum.
  • You will have fixed repayment amounts and a fixed repayment period.

Drawbacks of Personal Loan

Remember the following drawbacks when choosing a personal loan over a credit card. 

  • The personal loan usually charges a service fee and other hidden charges which add up to the repayment amount.
  • The personal loan does not provide any credits after the repayment of the loan.
  • Borrowers don’t get any additional rewards through a personal loan.

Credit Cards

Credit cards offer revolving credit, which basically is access to ongoing funds. The revolving credit provides credit card holders access to a specific amount of money according to the credit limit every month. But the amount cannot be accessed completely at a time. Instead, credit card holders can use the money as needed. The interest is paid on the amount of money used, so the credit card holder can still have an open account with no interest if there is no balance. 

Unlike a personal loan with a fixed monthly payment, the credit card bill varies monthly. The repayment amount will depend on the interest and the balance. The credit card holder will be given a minimum payment amount and will not be required to pay the full balance amount. The remaining balance will be carried to the next month with interest applied. Credit cards are unsecured. However, if the expected cardholder has a poor or no credit score, secured credit cards can be availed by those with the help of security or collateral. 

Benefits of Credit Card

Enjoy these benefits with a credit card. 

  • It provides an ongoing revolving credit balance, which levies interest when the cardholder uses the funds.
  • It offers benefits like 0% introductory interest rates and additional rewards. 
  • Cardholders with good standing may get an increase in their credit limit.

Drawbacks of Credit Card

Credit cards do have some considerable downsides

  • The interest rates of a credit card are usually higher than a personal loan interest rate.
  • Interest and balance, when not paid, can add up again and again and may create a cycle of debt for the cardholder.


As established, credit cards and personal loans are useful financial tools. However, the type of funds they provide, their interest rates, and their repayments make them different. A credit card, with its higher accumulating interest and uncertain bill, can be harder to manage due to the predecided nature of a personal loan. That being said, unlike a credit card, a personal loan is only a one-time borrowing tool. You will have to apply for personal loan each time you want financial assistance. 

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