{"id":114379,"date":"2018-06-22T11:45:38","date_gmt":"2018-06-22T10:45:38","guid":{"rendered":"https:\/\/www.finder.com\/uk\/?p=114379"},"modified":"2026-02-25T14:02:02","modified_gmt":"2026-02-25T14:02:02","slug":"credit-card-or-personal-loan","status":"publish","type":"post","link":"https:\/\/www.finder.com\/uk\/personal-loans\/credit-card-or-personal-loan","title":{"rendered":"Personal loan vs credit card: Which is right for you?"},"content":{"rendered":"

If you\u2019re looking to make a large purchase but don\u2019t have the cash to pay for it upfront, you might be considering borrowing the funds. Depending on the purchase you need to make, you could use either a personal loan<\/a> or a credit card<\/a>. Both have a number of benefits and drawbacks. Here, we explain how they work so you can decide what\u2019s right for you.<\/p>

How do personal loans and credit cards work?<\/h3>

Personal loans enable you to borrow a lump sum of cash that you then repay over a set term in fixed monthly instalments. Interest will be added on top.<\/p>

You can typically borrow between \u00a31,000 and \u00a315,000 with a personal loan, although some providers will let you borrow up to \u00a325,000. Repayment terms tend to vary between 1 and 7 years. Should you want to pay back your loan before the end of the term, you will usually need to pay an early repayment charge. In some cases, there might also be an application fee.<\/p>

A credit card, on the other hand, gives you access to a flexible line of credit. That means you can borrow up to your set credit limit whenever you want to. Credit limits can vary from a few hundred pounds to a few thousand.<\/p>

Repayments are also flexible rather than fixed. You\u2019ll need to pay off a minimum amount each month, but how much you pay on top of that is up to you. However, if you don\u2019t pay off your balance in full each month, you\u2019ll usually pay interest on the amount you haven\u2019t repaid.<\/p>

When should you use a credit card?<\/h3>

A credit card will generally be the better choice for regular spending or if you are borrowing smaller amounts. Credit cards can also be a good option if you want to have some flexibility over repaying the debt. <\/p>

Using a credit card will also give you purchase protection. Under Section 75 of the Consumer Credit Act <\/a>, all credit card purchases costing more than \u00a3100 and up to \u00a330,000 will be covered, even if you only pay for part of the purchase with your card. This means your credit card provider is jointly liable with the retailer in the event that the item doesn\u2019t turn up or is not as described. <\/p>

As well as purchases, credit cards can also be beneficial if you want to consolidate existing card debt. You can transfer credit card debt across to a 0% balance transfer credit card and benefit from several months of interest-free payments. This can help you to clear your debt faster and more cheaply. Just watch out for transfer fees. <\/p>

When should you get a personal loan?<\/h3>

Personal loans can be a more suitable choice if you need to borrow a larger sum of money. You might want to use one to pay for essential home improvements, for example. They can also be a better option if you\u2019re on a budget and prefer having fixed monthly repayments. <\/p>

Personal loans can also help you to consolidate several different types of debt. You use the loan to pay off your existing borrowing and then only have one repayment to make each month to the one lender. This can make it much easier to manage and, if you\u2019ve been able to secure a competitive loan rate, it can also work out cheaper. <\/p>

How interest works<\/h3>

Credit cards come with what\u2019s known as a \u201cgrace period\u201d. This period is typically around 56 days and runs from the start of your billing cycle. During this time, you don\u2019t have to pay any interest on your purchases. Your provider will send you a monthly bill showing you how much you owe at least 21 days before your payment is due. If you pay off your balance in full, you won\u2019t pay any interest at all. <\/p>

However, if you can\u2019t do this, you must pay at least the minimum monthly repayment and interest will usually be charged on the remaining balance. Some credit cards offer separate 0% promotional deals for several months, meaning you won\u2019t pay interest on any of your purchases during that time.<\/p>

Personal loans, on the other hand, always charge interest and it will be applied to your monthly payments. The interest rate is usually fixed but some loans offer variable rates. Interest rates on personal loans tend to be lower compared to those for credit cards, with the best rates typically being on loan amounts of \u00a37,500 or more. <\/p>

Bear in mind that the advertised annual percentage rate (APR) for both credit cards and personal loans is \u201crepresentative\u201d. This means that at least 51% of successful applicants will get the advertised rate, but the remaining 49% might be charged a higher rate. You\u2019re more likely to get the advertised rate if you have a good credit score. <\/p>

Popular uses<\/h3>

Credit cards are often used to pay for the following:<\/p>

  • Online shopping<\/li>
  • Flights and holidays<\/li>
  • Supermarket shopping<\/li>
  • Large one-off purchases<\/li><\/ul>

    Personal loans are often used to pay for the following:<\/p>

    • Home improvements<\/li>
    • A new car<\/li>
    • A wedding<\/li>
    • Debt consolidation<\/li><\/ul>

      What are the main differences between personal loans and credit cards?<\/h3>

      Rates, terms and limits are mostly subject to personal circumstances. We\u2019ve filled out a table with some of the typical figures you\u2019re likely to see:<\/p>
      <\/th>Personal loan<\/th>Credit card<\/th><\/tr><\/thead>
      Interest rate (with good credit)<\/th>5\u201310%<\/td>20\u201325% (but introductory rates of 0% are available<\/a>)<\/td><\/tr>
      Repayment terms<\/th>Fixed monthly payment<\/td>Flexible payments subject to a minimum amount<\/td><\/tr>
      Borrowing limit<\/th>\u00a325,000<\/td>\u00a35,000<\/td><\/tr>
      Receiving funds<\/th>One lump sum upon approval<\/td>Revolving credit \u2013 borrow what you need when you need it<\/td><\/tr>
      Payment protection<\/th>No protection<\/td>Protected by Section 75 of the Consumer Credit Act<\/td><\/tr><\/tbody><\/table>