Compare personal loans vs. credit cards: Which has better rates?

What’s the difference between a personal loan and a credit card?

Credit card or personal loan? The answer depends on what you’re buying and how you intend to pay it back.

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When you’re in the market to make a major purchase but don’t have all the cash on hand, borrowing funds can be a viable route. It usually comes down to two options: credit cards and personal loans. Both have pros and cons, but choosing the one that best suits your financial situation could save you money in the long run.

Our top pick: LendingClub Personal Loan

  • Min. Credit Score Required: 640
  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $40,000
  • APR: 6.95% to 35.89%
  • Requirements: US citizen or permanent resident, verifiable bank account, steady source of income, ages 18+.
  • No prepayment penalties
  • Flexible loan terms
  • Fast and easy application

Our top pick: LendingClub Personal Loan

A peer-to-peer lender offering fair rates based on your credit score.

  • Min. Credit Score Required: 640
  • Min. Loan Amount: $1,000
  • Max. Loan Amount: $40,000
  • APR: 6.95% to 35.89%
  • Requirements: US citizen or permanent resident, verifiable bank account, steady source of income, ages 18+.
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How do personal loans and credit cards work?

Personal loans and credit cards are both types of credit that you have to repay with interest. However, there are some differences between the two.

  • Personal loans come in a lump sum. You have a predetermined amount of time to pay them off, usually between one and seven years. On top of interest, you might also have to pay application, origination, monthly or prepayment fees.
  • Credit cards are a revolving form of borrowing, so they can theoretically last a lifetime. There’s a cap on how much you can borrow each month and you have to make at least a minimum monthly payment on your balance. Many credit cards charge annual fees but also come with interest-free grace periods, balance transfers and rewards.

Main differences between personal loans and credit cards

Personal loan Credit card
Interest rate Generally 2.99%-36.00% Generally 13.99% to 22.99%
Repayment terms Monthly Monthly
Borrowing limit Can be up to $100,000 Can be as high as $50,000
Funds disbursement One lump sum upon approval Revolving credit on card
(cash advances available as well)

Compare personal loan lenders and credit card providers

Updated September 15th, 2019
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
6.95% to 35.89%
640
$40,000
A peer-to-peer lender offering fair rates based on your credit score.
5.34% to 35.99%
Good to excellent credit
$100,000
Get personalized rates in minutes and then choose a loan offer from several top online lenders.
3.99% to 35.99%
500
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
Varies by lender
Available for all credit scores
$100,000
Get a connected with a lender — or get debt advice.
5.99% to 17.66%
680
$100,000
No fees. Multiple member perks such as community events and career coaching.
3.84% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
34% to 155% (Varies by state)
550
$10,000
Check eligibility in minutes and get a personalized quote without affecting your credit score.
7.99% to 35.89%
620
$50,000
Affordable loans with two simple repayment terms and no prepayment penalties.

Compare up to 4 providers

Name Product Filter values Rewards Purchase APR Annual fee
7x points on Hilton Honors purchases, 5x at US restaurants, US supermarkets and US gas stations, 3x on all other purchases
17.74% to 26.74% variable
$0
Earn 75,000 Hilton Honors Bonus Points after you spend $1,000 in purchases on the card within your first 3 months of card membership. Rates & fees
N/A
0% intro for the first 18 months (then 12.99% to 20.99% variable)
$0
An 18 months 0% intro APR period on both purchases and balance transfers, plus zero foreign transaction fees, makes this is a strong well-rounded card. See Rates and Fees
1.5% cash back on all purchases
0% intro for the first 15 months (then 16.24%, 22.24% or 26.24% variable)
$0
Earn unlimited 1.5% cash back on every purchase, every day.
6% on select US streaming services, 3% on transit and US gas stations, 6% at US supermarkets on up to $6,000 annually, then 1% after that and on all other purchases
0% intro for the first 12 months (then 14.99% to 25.99% variable)
$95
Earn $250 bonus cash back after you spend $1,000 on purchases in the first 3 months. Rates & fees
1.5% cash back after earning 3% on all purchases in your first year up to $20,000
0% intro for the first 15 months (then 16.99% to 25.74% variable)
$0
Earn 3% cash back on all purchases in your first year up to $20,000 spent, then earn 1.5% cash back after that.
3% cash back on up to $10,000 in the first 12 months, then 1.5% on all purchases
0% intro for the first 12 months (then 14.99% to 24.99% variable)
$0
Earn 3% cash back on up to $10,000 in the first 12 months, then 1.5% on all purchases. See Rates and Fees.
1.25x miles on all purchases and 10x miles at hotels.com/venture
0% intro for the first 12 months (then 14.24%, 20.24% or 24.24% variable)
$0
Earn 20,000 bonus miles once you spend $1,000 on purchases within the first 3 months from account opening.
3% cash back on dining and entertainment, 2% at grocery stores and 1% on all other purchases
0% intro for the first 15 months (then 16.24%, 22.24% or 26.24% variable)
$0
Earn $150 after spending $500 in the first 3 months.
5% back in rotating categories up to $1,500 combined each activated quarter, then 1% after that and on all other purchases
0% intro for the first 15 months (then 16.99% to 25.74% variable)
$0
Earn $200 cash back after spending $500 in the first 3 months from account opening.
2x points on travel and dining and 1x points on all other purchases
17.99% to 24.99% variable
$95
Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months.
2x miles on all purchases and 10x miles at hotels.com/venture
17.99%, 22.74% or 25.24% variable
$0 intro annual fee for the first year ($95 thereafter)
Earn 50,000 bonus miles after spending $3,000 on purchases within the first 3 months from account opening.
2x miles at restaurants, hotels and United and 1x miles on all other purchases
18.49% to 25.49% variable
$0 intro annual fee for the first year ($95 thereafter)
40,000 bonus miles after you spend $2,000 on purchases in the first 3 months from account opening.
2x points on Southwest Airlines and 1x points on all other purchases
17.99% to 24.99% variable
$99
Earn 40,000 bonus points after you spend $1,000 on purchases in the first 3 months, plus 20,000 points after spending $12,000 on purchases in the first 12 months.
3x points on dining and travel after earning your $300 travel credit and 1x points on all other purchases
18.99% to 25.99% variable
$450
Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months
5x points on directly-booked flights or on flights and hotels on Amex Travel. 1x points on all other purchases
N/A
$550
Get 5x Membership Rewards® points on flights booked directly with airlines or with American Express Travel and 5x points on eligible hotels booked on amextravel.com. Rates & fees
2x miles at US restaurants and on direct Delta purchases and 1x miles on all other purchases
17.74% to 26.74% variable
$0
Earn 10,000 bonus miles after spending $500 in purchases on your new card in your first 3 months of card membership. Rates & fees
3x points on directly-booked flights; 4x at restaurants; 4x at US supermarkets on up to $25,000 annually (then 1x points)
See Rates & Fees
$250
35,000 bonus Membership Rewards® Points when you spend $2,000 in the first 3 months. Rates & fees
4% cash back on dining and entertainment, 2% at grocery stores and 1% on all other purchases
16.74%, 22.24% or 25.74% variable
$0 intro annual fee for the first year ($95 thereafter)
Earn $300 after spending $3,000 in the first 3 months.
5% on up to $2,000 each activated quarter on two categories combined (1% after), 2% on one everyday category and 1% on all other purchases
15.99% to 25.49% variable
$0
When you spend $500 on your card within the first 90 days, you’ll receive a $150 cash back bonus. Rates & Fees
3% on dining, 2% at grocery stores and 1% on all other eligible purchases
14.99%, 19.99% or 24.99% variable
$0
Earn $200 cash back when you spend $500 within 90 days after account opening.
2x points on gas, groceries or airlines, whichever you spend the most on each month, 2x points on cell phone services and charities and 1x points on all other purchases
15.99% to 25.99% variable
$0 intro annual fee for the first year ($49 thereafter)
Earn 25,000 enrollment FlexPoints worth $375 in travel after spending $2,000 in the first 4 months. Rates & Fees
2x miles on Delta purchases and 1x miles on all other purchases
17.74% to 26.74% variable
$0 intro annual fee for the first year ($95 thereafter)
Earn 30,000 miles after spending $1,000 in the first 3 months, plus $50 when you make a direct Delta purchase in the same timeframe. Rates & fees
12x points on Hilton Portfolio spending, 6x at US restaurants, US supermarkets and US gas stations, 3x on all other purchases
17.74% to 26.74% variable
$95
Earn 125,000 Hilton Honors™ Bonus Points after you spend $2,000 or more in purchases with your new card within the first 3 months of card membership. Rates & fees
12x points at Hilton, 6x points on select business and travel and 3x points on all other purchases
17.74% to 26.74% variable
$95
Earn 125,000 Hilton Honors Bonus Points after you spend $3,000 in eligible purchases on the card within the first 3 months of card membership. Rates & fees
2x miles at restaurants, gas stations and office supply stores, 2x miles on United and 1x miles on all other purchases
17.99% to 24.99% variable
$95
Earn 50,000 miles after spending $5,000 in the first 3 months. Earn another 50,000 miles after spending $25,000 total in the first 6 months.
1% cash back to your choice of nonprofits, K-12 schools, colleges and religious organizations
1.99% intro for the first 6 monthly billing cycles (then 16.24% to 22.24% variable)
$0
1% cash back to the nonprofits, K-12 schools, colleges and religious organizations of your choice.
1x points on all purchases with 2% point value when you redeem for airfare and 1.5% for cash back
17.24% variable
$495
Receive an annual $100 air travel credit toward flight-related purchases including airline tickets, baggage fees, upgrades and more.
1x points on all purchases with 2% point value when you redeem for airfare and 1% for cash back
17.24% variable
$195
Enjoy unique excursions, privileged access to exclusive events and insider opportunities.
1x points on all purchases with 2% point value when you redeem for airfare or cash back
17.24% variable
$995
Earn 2% point value when redeemed for airfare or cash back through the Luxury rewards program.
1% cash back right away, 1.25% after six on-time payments and 1.5% after 12 on-time payments
14.99% to 25.99% variable
$0
Build your credit with no fees: Apply if you're new to credit or have a fair to good score.
1.5% cash back on all purchases
26.96% variable
$39
Get unlimited 1.5% cash back on every purchase with no limit on how much you can earn, and no changing categories.
N/A
26.96% variable
$0
A no-annual-fee card for average credit. Earn a higher credit line after five on-time payments.
N/A
26.99% variable
$0
Get access to a higher credit line after making your first 5 monthly payments on time.
3% back on travel and entertainment and 2% on dining up to $500 combined each billing cycle, then 1% after that and on all other purchases
17.99% to 24.99% variable
$0
Earn 3% cash back on travel and entertainment and 2% at restaurants on the first $1,000 spent on purchases each billing cycle (then 1%). Earn 1% on all other purchases.
N/A
19.64% variable
$35
A secured Visa® credit card that helps you build your credit quickly.
N/A
29.99% variable
$125 intro annual fee for the first year ($96 thereafter)
Designed for people with less than perfect credit. If you make on-time minimum payments and maintain your balances under the credit limits, you may be able to build, rebuild, or reestablish your credit.
N/A
34.99% variable
$75 intro annual fee for the first year ($48 thereafter)
Build or rebuild your credit with this Visa credit card.
1% cash back on all purchases or in categories based on Credit One Bank’s discretion
20.24% to 26.24% variable
$0 to $99
Earn 1% cash back on all purchases or in categories based on Credit One Bank’s discretion.
1% cash back on all purchases or in categories based on Credit One Bank’s discretion
20.24% to 26.24% variable
$0 to $99
Get 1% cash back on all purchases or in categories based on Credit One Bank’s discretion.
Up to 1% cash back on eligible purchases determined by Credit One and double cash back at NASCAR.com
20.24% to 26.24% variable
$0 to $99
Get up to 1% cash back rewards on eligible purchases determined by Credit One and double cash back rewards at the NASCAR.com Superstore.
N/A
24.9% fixed
$0 to $99
The Indigo® Platinum Mastercard® Credit Card is specifically designed for those with less than perfect credit.
N/A
9.99% fixed
$48
This secured card can help you rebuild your credit with an initial deposit of $200 to $1,000.
N/A
14.74% variable
$39
No minimum credit score and no credit history required.
N/A
10.74% variable
$49
Build or rebuild your credit with this secured card.
1% cash back on all purchases, 1.25% for months you pay on time
26.96% variable
$0
Earn 1% cash back on all purchases or get 1.25% cash back for months you pay on time.
2x points on Southwest and Rapid Rewards hotel and car rentals and 1x points on all other purchases
17.99% to 24.99% variable
$149
Earn 40,000 points after you spend $1,000 in the first 3 months of account opening, plus 20,000 points after spending $12,000 on purchases in the first 12 months.
40x points at IHG hotels and 4x on other purchases for the first 12 months. Then 25x points at IHG, 2x on gas, groceries and dining and 1x on all other purchases
17.99% to 24.99% variable
$89
125,000 points after spending $3,000 in the first 3 months plus 10,000 points after spending $20,000 and making one additional purchase each account anniversary.
3x points at Marriott Bonvoy hotels, 2x on travel and 1x on all other purchases
17.99% to 24.99% variable
$0
50,000 bonus points after you spend $2,000 on purchases in your first 3 months from your account opening.
6x points at Marriott Bonvoy hotels and 2x points on all other purchases
17.99% to 24.99% variable
$95
Earn 75,000 bonus points after you spend $3,000 on purchases in the first 3 months from account opening.
9x points at Hyatt hotels as a World of Hyatt member, 2x on gyms, commuting, dining and airlines and 1x on all other purchases
17.99% to 24.99% variable
$95
Earn 25,000 points after spending $3,000 on purchases in the first 3 months. 25,000 points after spending another $6,000 in the first 6 months.
2x points on Southwest Airlines and 1x points on all other purchases
17.99% to 24.99% variable
$69
Earn 40,000 bonus points after you spend $1,000 on purchases in the first 3 months your account is open, plus 20,000 points after spending $12,000 on purchases in the first 12 months.
N/A
24.99% variable
$0
Designed to help build credit history with no deposit required. Apply if you're new to credit or have a fair to good score over 650.
1% cash back on all purchases
20.74% variable
$0
Designed for college students to build credit history and earn rewards.
5% cash back on gas (on up to $6,000 annually, then 1%), 3% on dining and travel and 1% on all other purchases
17.15% to 25.15% variable
$0
Earn 5% cash back on gas (on up to $6,000 annually, then 1%), 3% on dining and travel and 1% on all other purchases.

Compare up to 4 providers

Benefits and drawbacks of a personal loan

Benefits

  • Lower interest rates than credit cards
  • Repayment schedule means your debt comes with an end date
  • Can be cheaper in the long term
  • No temptation to overspend

Drawbacks

  • Minimum loan term means that you’ll carry the debt for more than a year
  • Can be inflexible (may not offer early repayments)
  • Can take longer to apply for

Suitable for

  • Large one-off purchases like cars or home improvement
  • Large debt consolidations
  • Borrowing over a long period of time

Compare and apply for a personal loan

Benefits and drawbacks of a credit card

Benefits

  • Immediate spending
  • Can come with rewards
  • Convenient option if you need a constant cash flow
  • Balance transfer for debt consolidation
  • Interest-free grace period

Drawbacks

  • Usually carry higher interest rates
  • Only requires a minimum repayment each statement period, which means your debt can accrue interest indefinitely

Suitable for

  • Smaller purchases
  • Small debt consolidations
  • Everyday shopping or retail purchases to earn reward points
  • Spending amounts that you can be paid back within the interest-free introductory period

Find the best credit card for you

A road that is divided into a personal loan option vs a credit card optionPersonal loans vs. credit cards: Which one is right for you?

There is no single answer to this question. While a credit card might be the right choice in one situation, a personal loan might be more suitable in another. And in a third situation, neither might be appropriate.

Here are some questions to ask to help decide which credit product might best meet your needs:

  • What do you need the funds for? If you need money for a one-off expense, such as a large purchase, then a personal loan may be suitable. If you want continued access to credit, then a credit card may be a better option.
  • How do you manage your repayments? Credit cards are an ongoing form of credit, while personal loans have an end date. If either a personal loan or credit card will work for your needs, you may want to consider how disciplined you are with repayments. If you think you may be tempted with the credit line sitting there, then a more structured repayment schedule, such as that offered by a personal loan, may be worth considering.
  • Are you consolidating debt? It’s important to consider your options carefully. How much debt do you have and does it include loans and credit card accounts? Make sure you’ll be able to consolidate all of your account — for instance, only certain providers allow you to balance transfer loans to a credit card. You also have the option of consolidating your credit cards to a personal loan, which may be able to help you save.
  • How much are you looking to borrow? Credit card limits differ, as do personal loan limits. Generally, with an unsecured personal loan you can apply for up to $100,000. You may be able to get a high credit limit with a credit card, but you’ll generally need to meet stricter eligibility criteria.

Financing home renovations

Imagine this scenario: Ashley recently bought a home and is looking to fund some renovations. Since she has no equity, she narrows her options down to a credit card and a personal loan. The personal loan has a term of four years, and Ashley decides she’ll calculate the credit card’s monthly payments based off the same term.

Credit cardPersonal loan
Credit limit or loan amount$7,500$15,000
Interest rate19%6.5%
Monthly payment$224.25$355.72
Total interest paid$3,264.04$2,074.77

Because Ashley has carefully budgeted for the home renovations, she knows she can afford the higher payments the personal loan requires. And since she can borrow more — while paying less in interest — Ashley decides to go through with the personal loan rather than the credit card.

How to compare personal loans and credit cards

  • Interest rates. If you compare interest rates, generally personal loans are cheaper. The true cost is reflected in the APR, as you need to consider any fees as well.
  • Fees. Personal loans may come with an application fee or origination fee, among other fee types. Credit cards usually just have the annual fee, if there’s a fee at all.
  • Your financial situation. If you have good control over your spending and you regularly follow your budget, then a credit card could be suitable and even help you earn money through rewards and cash back. On the other hand, a personal loan offers the structure some people may need to repay debt timely.

How interest is calculated: Credit card vs. personal loan

Credit cards and personal loans might both come with APRs. But it doesn’t quite work the same way. With a personal loan, you’ll typically pay a percentage of your loan principal in interest each month — this amount can vary, especially if your loan is amortized.

With a credit card, you can effectively avoid paying interest if you’re able to pay off your balance each month. You’ll only pay interest when you have a balance that takes more than a month to pay off — which can take less time than a personal loan. So while credit card rates might be higher, they also come with the option of completely avoiding interest payments.

Using a personal loan or credit card to consolidate debt

Debt consolidation involves merging multiple debts into one loan or credit card. It simplifies your monthly payments and could save you money if you find a lower interest rate. There are two main ways to do this: With a debt consolidation loan or a balance transfer credit card.

  • Debt consolidation loans are term loans used to pay off any kind of debt at a lower interest rate. Your lender either gives you the money to pay off your debt, or — more likely — asks for your payment information to do it for you.
  • Balance transfer credit cards allow you to transfer all of credit card debt to onto a new card with a lower rate. They usually charge a one-time transfer fee, on top of annual fees, and often offer introductory rates that can be as low as 0%.

Bottom line

Personal loans and credit cards are two forms of borrowing that both offer attractive benefits and some notable drawbacks. Which you choose is ultimately up to you, and many people have used both at different points for different purposes. Be sure to compare your options to make an informed decision.

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