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

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

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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.

Prosper

Personal loans through Prosper

You could borrow up to $40,000 for a variety of purposes, with rates from 6.95%–35.99%.

  • Recommended Credit Score: 640 or higher
  • Minimum Loan Amount: $2,000
  • Maximum Loan Amount: 40000
  • Loan Term: 3 or 5 years
  • Turnaround Time: 1-3 business days
  • Simple online application process
  • No prepayment penalties

    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

    Rates last updated June 21st, 2018

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    Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
    Name Product Product Description Minimum Credit Score Max. Loan Amount APR
    Best Egg Personal Loans
    A prime lender with multiple repayment methods.
    640
    $35,000
    5.99%–29.99% (fixed)
    Upgrade Personal Loans*
    Affordable loans with two simple repayment terms and no prepayment penalties.
    620
    $50,000
    5.96%–35.97% (fixed)
    LendingPoint Personal Loans
    Get a personal loan with reasonable rates even if you have a fair credit score in the 600s.
    600
    $25,000
    15.49%–34.99% (fixed)
    Even Financial Personal Loans
    Get connected to competitive loan offers instantly from top online consumer lenders.
    580
    $100,000
    4.99%–35.99% (fixed)
    SoFi Personal Loan Fixed Rate (with Autopay)
    No fees. Multiple member perks such as community events and career coaching.
    740
    $100,000
    6.199%-15.365% (fixed)
    Monevo Personal Loans
    Quickly compare multiple online lenders with competitive rates depending on your credit score.
    580
    $100,000
    3.09%–35.99% (fixed)
    Prosper
    Borrow only what you need for debt consolidation, home improvements and more — with APRs based on overall creditworthiness.
    640
    $40,000
    6.95%–35.99% (fixed)
    Laurel Road Personal Loans
    Get a personal loan with no application or origination fees and a rate discount for autopay.
    680
    $45,000
    5.5%–11.74% (fixed)
    FreedomPlus Personal Loans
    Consolidate debt and more with these low-interest loans. Cosigners welcome.
    640
    $35,000
    4.99%–29.99% (fixed)
    LendingClub Personal Loan
    A peer-to-peer lender offering fair rates based on your credit score.
    660
    $40,000
    5.98%–35.89% (fixed)
    CompareFirst Personal Loans
    An easy-to-use loan connection service geared toward introducing first-time borrowers to affordable personal loans.
    580
    $50,000
    2.99%–36% (fixed)
    OneMain Financial Personal and Auto Loans
    An established online and in-store lender with quick turnaround times. Poor credit is OK.
    300
    $30,000
    16.05%–35.99%* (fixed)
    NetCredit Personal Loan
    Check eligibility in minutes and get a personalized quote without affecting your credit score.
    550
    $10,000
    34%–155% (fixed)

    Compare up to 4 providers

    Rates last updated June 21st, 2018
    Name Product APR for Purchases ( Purchase Rate ) Intro APR for Balance Transfer Annual fee Product Description
    Amex EveryDay® Credit Card
    14.74% to 25.74% variable
    0% Intro APR for 15 months
    $0
    Earn 15000 Membership Rewards® Points after you use your new Card to make $1,000 in purchases in your first 3 months.
    Deserve® Classic Card
    24.49% variable
    $39
    Designed to help build credit history with no deposit required and access to benefits.
    Apply now Read review
    Bank of America® Cash Rewards Credit Card
    14.74% to 24.74% variable
    0% Intro APR for 12 statement closing dates (with whichever is greater, $10 or 3% balance transfer fee)
    $0
    Earn more cash back for the things you buy most.
    Blue Cash Everyday® Card from American Express
    14.74% to 25.74% variable
    0% Intro APR for 15 months (with whichever is greater, $5 or 3% balance transfer fee)
    $0
    Earn $150 back after you spend $1,000 in purchases on your new Card in your first 3 months. You will receive the $150 back in the form of a statement credit.
    Luxury Card Mastercard® Black Card™
    16.49% variable
    0% Intro APR for first 15 billing cycles (with whichever is greater, $5 or 3% balance transfer fee)
    $495
    Mastercard Black Card members receive an annual $100 air travel credit toward flight-related purchases including airline tickets, baggage fees, upgrades and more.
    Apply now Read review
    Chase Sapphire Preferred® credit card
    17.49% to 24.49% variable
    $0 annual fee for the first year ($95 thereafter)
    Earn 50000 points when you spend $4,000 on purchases within the first 3 months of your account opening, and an additional 30,000 points when you spend a total of $30,000 on purchases within the first year of your account opening.
    Indigo® Platinum Mastercard® Credit Card
    23.9% variable
    $75 annual fee for the first year ($0 to $99 thereafter)
    With this card you get a 23.9% variable APR.
    Apply now Read review
    The First Access VISA® Credit Card
    29.99% variable
    $75 annual fee for the first year ($48 thereafter)
    Access credit even if you have poor or limited credit history.
    Apply now Read review
    Luxury Card Mastercard® Gold Card™
    16.49% variable
    0% Intro APR for 15 billing cycles (with the amount of each transfer, $5 or 3% balance transfer fee)
    $995
    Earn points every time you spend. Luxury Card enhances your purchasing power by providing you with one (1) point for every one dollar ($1) you spend. Every purchase gets you closer to the rewards you want.
    Apply now Read review
    Chase Sapphire Reserve®
    17.49% to 24.49% variable
    $450
    Earn 50000 BONUS POINTS after spending $4,000 on purchases in the first 3 months from account opening* — that's $750 toward travel when you redeem through Chase Ultimate Rewards®.
    Credit One Bank® Visa® with Free Credit Score Tracking
    17.49% to 25.49% variable
    $0 to $75 first year annual fee for the first year ($0 to $99 thereafter)
    Get 1% cash back rewards on eligible purchases including gas, groceries, and services such as mobile phone, internet, cable and satellite TV, terms apply.
    Apply now Read review
    Amex EveryDay® Preferred Credit Card
    14.74% to 24.74% variable
    0% Intro APR for 12 months (with whichever is greater, $5 or 3% balance transfer fee)
    $95
    Earn 15000 Membership Rewards Points after you use your new Card to make $1,000 in purchases in your first 3 months.
    Chase Freedom Unlimited® credit card
    16.49% to 25.24% variable
    $0
    Earn unlimited 1.5% cash back on every purchase – it's automatic. No minimum to redeem for cash back.
    Bank of America® Premium Rewards® Credit Card
    17.49% to 24.49% variable
    $95
    Earn unlimited 2 points for every $1 spent on travel and dining purchases and 1.5 points for every $1 spent on all other purchases.
    Quicksilver® from Capital One®
    14.49%, 20.49% or 24.49% variable
    0% Intro APR for 15 months (with 3% balance transfer fee)
    $0
    Earn unlimited 1.5% cash back on every purchase, every day
    Chase Freedom® credit card
    16.49% to 25.24% variable
    0% Intro APR for 15 months (with whichever is greater, $5 or 5% balance transfer fee)
    $0
    Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate and unlimited 1% cash back on all other purchases.
    Bank of America® Travel Rewards Credit Card
    16.49% to 24.49% variable
    $0
    20,000 online bonus points offer. Ditch the restrictions of typical airline rewards cards. Any airline, any hotel, anytime. No blackout dates.
    Chase Slate® Credit Card
    16.49% to 25.24% variable
    0% Intro APR for 15 months (with $0 for transfers in first 60 days. Then $5 or 5% balance transfer fee)
    $0
    Jumpstart your financial fitness! 60 day introductory balance transfer offer, save on interest, and get your free monthly credit score.
    Venture® from Capital One®
    14.49%, 20.49% or 24.49% variable
    $0 annual fee for the first year ($95 thereafter)
    Earn 50000 bonus miles once after spending $3,000 on purchases within the first 3 months from account opening.
    HSBC Cash Rewards Mastercard® credit card
    14.49%, 18.49%, or 24.49% variable
    0% Intro APR for 15 months (with whichever is greater: $10 or 4% balance transfer fee)
    $0
    Earn unlimited 1.5% cash rewards on all purchases. See Rates and Fees
    Apply now Read review

    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

    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

    personal-loan-vs-credit-card2Personal 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 more suitable.
    • How do you manage your repayments? As mentioned in the point above, 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 will be able to bring across all your accounts to consolidate – for instance, only certain providers allow you to balance transfer loans to a credit card. You also have the option of consolidating your credit card to a personal loan, which can 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 a high credit limit with a credit card but you will generally need to meet stricter eligibility criteria.

    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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    US Personal Loans Offers

    Important Information*
    Even Financial Personal Loans

    Get connected to competitive loan offers instantly from top online consumer lenders.

    Prosper

    Borrow only what you need for debt consolidation, home improvements and more — with APRs based on overall creditworthiness.

    LendingClub Personal Loan

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

    SoFi Personal Loan Fixed Rate (with Autopay)

    No fees. Multiple member perks such as community events and career coaching.

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