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+.
  • Available in 48 states
  • Checking rate won't affect your credit
  • Can apply with a cosigner

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 January 21st, 2020
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
Credible Personal Loans
5.95% 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.
Fiona Personal Loans
3.84% to 35.99%
Good to excellent credit
$100,000
Get loan offers from multiple lenders at once without affecting your credit score.
Upgrade Personal Loans*
6.98% to 35.89%
670
$50,000
Affordable loans with two simple repayment terms and no prepayment penalties.
Even Financial Personal Loans
3.84% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
NetCredit Personal Loans
34% to 155% (Varies by state)
No minimum
$10,000
Check eligibility in minutes and get a personalized quote without affecting your credit score.
Monevo Personal Loans
3.99% to 35.99%
450
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
PenFed Credit Union Personal Loans
6.49% to 17.99%
650
$25,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
LendingClub Personal Loan
6.95% to 35.89%
640
$40,000
A peer-to-peer lender offering fair rates based on your credit score.
SoFi Personal Loan Fixed Rate (with Autopay)
5.99% to 17.88%
680
$100,000
A highly-rated lender with competitive rates, high loan amounts and no fees.

Compare up to 4 providers

Name Product Filter values Rewards Purchase APR Annual fee
Citi Rewards+℠ Card
Earn 2x points at supermarkets and gas stations on up to $6,000 annually, then 1x points after that and on all other purchases
0% intro for the first 15 months (then 14.99% to 24.99% variable)
$0
The only credit card that automatically rounds up to the nearest 10 points on every purchase - with no cap.
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 14.49% to 25.49% variable)
$0
Earn a $150 bonus statement credit after you spend $1,000 on purchases in the first 3 months. Rates & fees
CardMatch™ from creditcards.com
See terms
See issuer's website
See terms
Can't decide on a card? Get personalized credit card offers with CardMatch™.
Capital One® VentureOne® Rewards Credit Card
1.25x miles on all purchases and 10x miles at hotels.com/venture
0% intro for the first 12 months (then 13.49%, 19.49% or 23.49% variable)
$0
Earn 20,000 bonus miles once you spend $1,000 on purchases within the first 3 months from account opening.
Citi Simplicity® Card
N/A
0% intro for the first 12 months (then 16.24% to 26.24% variable)
$0
Enjoy one of the longest intro APRs on balance transfers, no late fees, no penalty rate and no annual fee.
Citi® Secured Mastercard®
N/A
23.99% variable
$0
A no annual fee secured card for people who are new to credit or have limited credit history with a fair to average credit score.
OpenSky® Secured Visa® Credit Card
N/A
18.89% variable
$35
A secured Visa® credit card that helps you build your credit quickly.
Gold Delta SkyMiles® Credit Card from American Express
2x miles on Delta purchases and 1x miles on all other purchases
17.24% to 26.24% 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
Capital One® Quicksilver® Cash Rewards Credit Card
1.5% cash back on all purchases
0% intro for the first 15 months (then 15.49%, 21.49% or 25.49% variable)
$0
Earn unlimited 1.5% cash back on every purchase, every day.
Applied Bank® Secured Visa® Gold Preferred® Credit Card
N/A
9.99% fixed
$48
This secured card can help you rebuild your credit with an initial deposit of $200 to $1,000.
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 14.49% to 25.49% variable)
$95
6% cash back at US supermarkets. Rates & fees
Chase Sapphire Preferred® Card
5x points on Lyft, 2x points on travel and dining and 1x points on all other purchases
17.49% to 24.49% variable
$95
Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months.
Capital One® Secured Mastercard®
N/A
26.74% variable
$0
Get access to a higher credit line after making your first 5 monthly payments on time.
Capital One® QuicksilverOne® Cash Rewards Credit Card
1.5% cash back on all purchases
26.74% variable
$39
Get unlimited 1.5% cash back on every purchase with no limit on how much you can earn, and no changing categories.
Credit One Bank® Visa® Cash Back Rewards
1% cash back on all purchases or in categories based on Credit One Bank’s discretion
19.49% to 25.49% variable
$0 to $99
Earn 1% cash back on all purchases or in categories based on Credit One Bank’s discretion.
Green Dot primor® Mastercard® Classic Secured Credit Card
N/A
13.99% fixed
$39
Designed for those with little or poor credit, the Green Dot primor® Mastercard® Classic Secured Credit Card has no minimum credit score requirements and no processing or application fees to worry about.

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 card Personal loan
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, 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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