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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.

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 loanCredit card
Interest rateGenerally 2.99%-36.00%Generally 13.99% to 22.99%
Repayment termsMonthlyMonthly
Borrowing limitCan be up to $100,000Can be as high as $50,000
Funds disbursementOne lump sum upon approvalRevolving credit on card
(cash advances available as well)

Compare personal loan lenders and credit card providers

Data indicated here is updated regularly
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
Credible personal loans
4.99% to 35.99%
Fair to excellent credit
$100,000
Get personalized rates in minutes and then choose an offer from a selection of top online lenders.
SoFi personal loans
5.99% to 18.83%
680
$100,000
A highly-rated lender with competitive rates, high loan amounts and no fees.
Upstart personal loans
8.69% to 35.99%
580 or 600 depending on state of residence
$50,000
This service looks beyond your credit score to get you a competitive-rate personal loan.
LendingTree personal loans
Starting from 3.99%
Good to excellent credit
$50,000
Receive up to five loan offers in just minutes through LendingTree's simple online form.
NetCredit personal loans
34% to 155%
No minimum
$10,500
Check eligibility in minutes and get a personalized quote without affecting your credit score.
Monevo personal loans
3.49% to 35.99%
None
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
Fiona personal loans
4.99% to 35.99%
Good
$100,000
Get loan offers from multiple lenders at once without affecting your credit score.
LightStream personal loans
Varies
Good to excellent credit
$100,000
Borrow up to $100,000 with low rates and no fees.
Even Financial personal loans
4.99% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
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Compare up to 4 providers

Name Product Filter values Rewards Purchase APR Annual fee
Blue Cash Everyday® Card from American Express
2% at US gas stations and select US department stores, 3% at US supermarkets on up to $6,000 per year, then 1% after that and on all other purchases
0% intro for the first 15 months (then 13.99% to 23.99% variable)
$0
Earn a $150 bonus statement credit after you spend $1,000 on purchases in the first 3 months. Rates & fees
Chase Freedom Unlimited®
5% cash back on travel purchased through Chase, 5% on Lyft, 3% on dining and drugstores and 1.5% on all other purchases
0% intro for the first 15 months (then 14.99% to 23.74% variable)
$0
Earn a huge signup bonus for a no annual fee card with rewards of up to 5% cash back on popular everyday categories.
Citi® Diamond Preferred® Card
N/A
0% intro for the first 18 months (then 14.74% to 24.74% variable)
$0
Long 18 months intro APR periods on purchases and balance transfers. Plus Citi Entertainment℠ for deals on dining and going out.
Chase Sapphire Preferred® Card
5x points on Lyft, 2x points on travel and dining and 1x points on all other purchases
15.99% to 22.99% variable
$95
This popular travel card's signup bonus is worth up to $1,000. Get even more value out of your travel, dining, and Lyft rewards by transferring them to miles.
Chase Freedom Flex℠
5% back in rotating categories up to $1,500 combined each activated quarter (then 1%), 5% on travel purchased through Chase, 3% on dining and drugstores, and 1% on all other purchases
0% intro for the first 15 months (then 14.99% to 23.74% variable)
$0
This no-annual-fee cashback card is one of the most valuable on the market. It boasts a huge signup bonus and up to 5% cashback in multiple purchase categories.
American Express® Gold Card
3x points on directly-booked flights; 4x at restaurants; 4x at US supermarkets on up to $25,000 annually (then 1x points)
$250
Earn 4x points at restaurants worldwide. Rates & fees
Citi® Double Cash Card
Up to 2% cash back on purchases (1% when you buy plus 1% as you pay)
13.99% to 23.99% variable
$0
This one of the most valuable flat cashback cards. It comes with 2% cash back (1% when you buy plus 1% when you pay) and 18 months to pay off transfers.
Blue Cash Preferred® Card from American Express
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 13.99% to 23.99% variable)
$95
6% cash back at US supermarkets. Rates & fees
Petal® Visa® Credit Card
Up to 10% cash back from select merchants, on other purchases earn 1% back, 1.25% after six on-time payments and 1.5% after 12 on-time payments
12.99% to 29.49% variable
$0
Build your credit with rewards and no fees: Apply if you're new to credit or have a fair to good score.
American Express Cash Magnet® Card
1.5% cash back on all purchases
0% intro for the first 15 months (then 13.99% to 23.99% variable)
$0
Unlimited 1.5% cash back. Rates & fees
Costco Anywhere Visa® Card by Citi
4% at gas stations on up to $7,000 annually (then 1%), 3% at restaurants and on travel, 2% at Costco and 1% on all other purchases
15.24% variable
$0
Earn valuable cash back on everyday purchases at gas stations, restaurants and Costco as well as eligible travel with no foreign fees.
Chase Sapphire Reserve®
10x points on Lyft rides, 3x points on dining and travel after earning your $300 travel credit and 1x points on all other purchases
16.99% to 23.99% variable
$550
Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months
CardMatch™ from creditcards.com
See terms
See issuer's website
See terms
Use the CardMatch tool to find cards you're likely to qualify for with your credit score, without a hard pull on your credit.
OpenSky® Secured Visa® Credit Card
N/A
17.39% variable
$35
Apply for this card with no credit check if you're new to credit or have bad credit.
Applied Bank® Secured Visa® Gold Preferred® Credit Card
N/A
9.99% fixed
$48
No credit check is required for this secured card. Make a deposit of at least $200 to open this card and get a low 9.99% fixed APR on purchases.
Credit One Bank® Unsecured Visa® with Cash Back Rewards
1% cash back on all purchases or in categories based on Credit One Bank’s discretion
17.99% to 23.99% variable
$0 to $99
Earn 1% cash back on all purchases or in categories based on Credit One Bank’s discretion.
Self Visa® Credit Card
N/A
21.74% variable
$25
Build your credit with a low minimum security deposit of $100 and no credit score required.
Reflex Mastercard® Credit Card
N/A
25.9% to 29.99% variable
$75 to $99
Made for people with poor credit who want an unsecured credit card. It can help you build credit, but watch out for high fees and interest.
FIT Mastercard® Credit Card
N/A
29.99% variable
From $99
Build or rebuild your credit with an unsecured card that reports to all three major credit bureaus.
Assent Platinum 0% Intro Rate Mastercard® Secured Credit Card
N/A
0% intro for the first 6 months (then 12.99% variable)
$49
A rare secured card with a 0% intro APR on purchases for 6 months, followed by 12.99% variable.
First Progress Platinum Elite MasterCard® Secured Credit Card
N/A
19.99% variable
$29
Build your credit with all three major credit bureaus.
TD Cash Credit Card
3% on dining, 2% at grocery stores and 1% on all other eligible purchases
0% intro for the first 15 billing cycles (then 12.99%, 17.99% or 22.99% variable)
$0
3% on dining and 2% on groceries make this a valuable card for food purchases. Use it while traveling, too, with no foreign transaction fees. Available in: CT, DC, DE, FL, MA, MD, ME, NC, NH, NJ, NY, PA, RI, SC, VA, VT
Luxury Card Mastercard® Titanium Card™
1x points on all purchases with 2% point value when you redeem for airfare and 1% for cash back
14.99% variable
$195
Enjoy unique excursions, privileged access to exclusive events and insider opportunities.
Southwest Rapid Rewards® Premier Credit Card
2x points on Southwest Airlines and 1x points on all other purchases
15.99% to 22.99% variable
$99
Earn 40,000 bonus points after you spend $1,000 on purchases in the first 3 months.
Southwest Rapid Rewards® Priority Credit Card
2x points on Southwest and Rapid Rewards hotel and car rentals and 1x points on all other purchases
15.99% to 22.99% variable
$149
Earn 40,000 points after you spend $1,000 in the first 3 months of account opening.
Southwest Rapid Rewards® Plus Credit Card
2x points on Southwest Airlines and 1x points on all other purchases
15.99% to 22.99% variable
$69
Earn 40,000 bonus points after you spend $1,000 on purchases in the first 3 months your account is open.
Delta SkyMiles® Gold American Express Card
2x miles on Delta purchases, restaurants and at US supermarkets and 1x miles on all other purchases
15.74% to 24.74% variable
$0 intro annual fee for the first year ($99 thereafter)
Earn 50,000 miles after spending $2,000 in the first 3 months. Rates & fees
Hilton Honors American Express Card
7x points on Hilton Honors purchases, 5x at US restaurants, US supermarkets and US gas stations, 3x on all other purchases
15.74% to 24.74% 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
Delta SkyMiles® Blue American Express Card
2x miles at restaurants and on direct Delta purchases and 1x miles on all other purchases
15.74% to 24.74% 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
Hilton Honors American Express Surpass® Card
12x points on Hilton Portfolio spending, 6x at US restaurants, US supermarkets and US gas stations, 3x on all other purchases
15.74% to 24.74% 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
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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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