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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.

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

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

1 – 7 of 7
Name Product Filter Values APR Min. Credit Score Loan Amount
Best Egg personal loans
7.99% to 35.99%
640
$2,000 to $50,000
A prime online lending platform with multiple repayment methods.
Credible personal loans
3.99% to 35.99%
Fair to excellent credit
$600 to $100,000
Get personalized rates in minutes and then choose an offer from a selection of top online lenders.
Bankrate
Bankrate
4.98% – 35.99%
Poor to excellent credit
$1,500 to $100,000
FreedomPlus personal loans
7.99% to 29.99%
600
$5,000 to $50,000
Consolidate debt and more with these low-interest loans. Cosigners welcome.
Upstart personal loans
5.6% to 35.99%
300
$1,000 to $50,000
This service looks beyond your credit score to get you a competitive-rate personal loan.
Upgrade personal loans
7.46% to 35.97%
600
$1,000 to $50,000
Affordable loans with two simple repayment terms and no prepayment penalties.
SoFi personal loans
7.99% to 23.43%
680
$5,000 to $100,000
A highly-rated lender with competitive rates, high loan amounts and no fees.
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Compare up to 4 providers

1 – 20 of 88
Name Product Filter values Rewards Purchase APR Annual fee
My GM Rewards Card™
My GM Rewards Card™
7x total points with GM, 4x points on purchases everywhere else*
0% intro for the first 12 months (then 17.99% to 27.99% variable)
$0
Get 15,000 bonus points after you spend $1,000 in your first 3 months*.
Capital One Venture Rewards Credit Card
2x miles on every purchase, every day, 5x miles on hotels and rental cars booked through Capital One Travel, 5x miles when you book on Turo, the world’s largest car sharing marketplace, through May 16, 2023
18.99% to 26.99% variable
$95
Earn 75,000 bonus miles once you spend $4,000 on purchases within the first 3 months ​from account opening.
Capital One VentureOne Rewards Credit Card
Earn unlimited 1.25x miles on every purchase, every day. Earn 5x miles on hotels and rental cars booked through Capital One Travel
0% intro for the first 15 months (then 17.99% – 27.99% variable)
$0
Earn 20,000 bonus miles once you spend $500 on purchases within the first 3 months from account opening.
Capital One Quicksilver Cash Rewards for Good Credit
Capital One Quicksilver Cash Rewards for Good Credit
1.5% cash back on every purchase, every day
5% cash back on hotels and rental cars booked through Capital One Travel (terms apply)
28.49% variable
$0
Earn the same 1.5% cash back on every purchase and $0 annual fee as the Capital One Quicksilver Cash Rewards Credit Card, apply with good credit.
Capital One SavorOne Cash Rewards for Good Credit
Capital One SavorOne Cash Rewards for Good Credit
3% cashback on dining, entertainment, popular streaming services and at grocery stores; 5% back on hotels and rental cars booked through Capital One Travel; 8% back on Capital One Entertainment and tickets at Vivid Seats; 1% on all other purchases
28.49% variable
$0
Made for people with good credit to enjoy the same $0 annual fee and rewards as the Capital One SavorOne Cash Rewards Credit Card.
Capital One VentureOne Rewards for Good Credit
Capital One VentureOne Rewards for Good Credit
1.25x miles on every purchase, every day and 5x miles on hotels and rental cars booked through Capital One Travel
28.49% variable
$0
The same rewards and $0 annual fee as the Capital One VentureOne Rewards Credit Card, but for those with good credit.
Instacart Mastercard®
Instacart Mastercard®
5% cash back on Instacart, 5% on travel through the Chase Travel Center, 2% on dining, gas, and select streaming services and 1% on all other purchases
17.24% to 25.99% variable
$0
Not just for Instacart, this card also offers competitive cash back in everyday categories like dining and gas.
GM Business Card™
GM Business Card™
Get 5% in Earnings on purchases of eligible GM parts, accessories and service at authorized GM dealers, 3% in Earnings on purchases at gas stations, restaurants and office supply stores, and 1% on all other purchases.*
0% intro for the first 12 months (then 16.99% to 26.99% variable)
$0
Get $750 in Bonus Earnings to redeem with GM towards the purchase or lease of eligible, new GM vehicles after you spend $5,000 in your first 5 months.*
Capital One Venture X Rewards Credit Card
2x miles on every purchase, every day, 10x miles on hotels and rental cars booked through Capital One Travel, 10x miles when you book on Turo, the world’s largest car sharing marketplace, through May 16, 2023, 5x miles on flights booked through Capital One Travel
19.99% – 26.99% variable
$395
Capital One's premium luxury travel card, featuring airport lounge access at Capital One Lounge and 1,300+ Priority Pass lounges.
PenFed Power Cash Rewards Visa Signature® Card
2% cash back for all PenFed Honors Advantage members and 1.5% cash back on all purchases
16.49% to 17.99% variable
$0
2% cash back for all PenFed Honors Advantage members and 1.5% cash back on all purchases made with your card.
Paceline
Paceline
1.5% cash back on qualifying purchases and 2.5% on qualifying Health & Wellness purchases
Achieving your weekly Paceline Streak will double your cash back for that week to 3% and 5% respectively.
From 31.49% variable
$60
The first credit card that rewards you for being active.
PenFed Platinum Rewards Visa Signature® Card
5x points on gas at the pump, 3x points on groceries and 1x points on all other purchases
16.49% to 17.99% variable
$0
Earn 5x points on gas at the pump and 3x points on groceries. Earn 1x points on all other purchases.
Capital One SavorOne Cash Rewards Credit Card
3% cash back on dining, entertainment, popular streaming services and at grocery stores, 1% on all other purchases. Plus, earn 8% cash back on Capital One Entertainment purchases and tickets at Vivid Seats, and 5% cash back on hotels and rental cars booked through Capital One Travel (terms apply)
0% intro for the first 15 months (then 17.99% to 27.99% variable)
$0
Earn unlimited 3% cash back on dining, entertainment, popular streaming services and at grocery stores (excluding superstores like Walmart® and Target®), plus 1% on all other purchases. Plus, earn 8% cash back on Capital One Entertainment purchases and tickets at Vivid Seats.
Capital One Quicksilver Cash Rewards Credit Card
Earn unlimited 1.5% cash back on every purchase, every day and 5% cash back on hotels and rental cars booked through Capital One Travel (terms apply)
0% intro for the first 15 months (then 17.99% – 27.99% variable)
$0
More than an unlimited 1.5% cash back card: you'll also earn 5% cash back on hotels and rental cars booked through Capital One Travel (terms apply).
Capital One Platinum Credit Card
N/A
28.49% variable
$0
Pay no annual fee, be automatically considered for a higher credit line in as little as 6 months
Luxury Card Mastercard® Black Card™
1x points on all purchases with 2% point value when you redeem for airfare and 1.5% for cash back
17.99% variable
$495
Receive an annual $100 air travel credit toward flight-related purchases including airline tickets, baggage fees, upgrades and more.
PenFed Pathfinder® Rewards Visa Signature® Card
3x points on travel or 4x points if you’re a PenFed Honors Advantage member and 1.5x points on all other purchases
17.99% variable
$95
50,000 bonus points when you spend $3,000 in the first 90 days from account opening.
Capital One Platinum Secured Credit Card
N/A
28.49% variable
$0
A no-annual-fee secured card that separates itself from the pack with a $200 credit limit after making a more affordable than average deposit of $49, $99 or $200.
Indigo® Mastercard® Credit Card
N/A
24.9% variable
$0 to $99
The Indigo® Mastercard® Credit Card is specifically designed for those with less than perfect credit.
Chase Freedom Unlimited®
4.5% on dining at restaurants, including takeout and eligible delivery services, 4.5% on drugstore purchases, 6.5% on travel purchased through Chase Ultimate Rewards®, Unlimited 1.5% cash back on all other purchases
0% intro for the first 15 months (then 17.24% to 25.99% variable)
$0
This solid 1.5% cashback card gets even better with the addition of up to 6.5% back in categories like travel, drug stores and dining.
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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

Personal 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 could also consolidate your credit cards into 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 limit or loan amount

$7,500

$15,000

Interest rate

19%

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, personal loans are generally 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.

Frequently asked questions

What is an interest-free grace period on a credit card?

This is the time between when you put a charge on your credit card and when that balance begins accruing interest. If you pay off your balance in full each month, you can avoid credit card interest altogether.

What is an unsecured loan?

An unsecured loan is one that doesn’t require collateral. The lender gives you the loan amount without securing one of your assets. Read our guide on unsecured loans to learn more.

I have excellent credit. Am I guaranteed to get any loan or credit card I apply for?

There’s no such thing as a guaranteed personal loan or credit card. Your chances of approval may be higher, but be sure to read the provider’s other eligibility criteria to make sure you qualify.

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