Personal loan vs credit card - when to use each
Personal loan vs credit card – when to use each

Personal loans and credit cards can help finance a major purchase. But which one is best suited to your situation? (iStock)

You’ve probably heard that it’s best to pay cash for all your expenses, but that’s not feasible for many consumers. Countless studies have shown that a good portion of Americans would struggle to cover a $1,000 emergency.

So whether you’re looking to cover an unexpected expense or finance a major purchase, personal loans and credit cards can help. Both options give you access to the financing you need, but on very different terms.

Credit cards and personal loans have different features that could be beneficial in different circumstances. Once you’ve decided which option best suits your needs, visit Credible’s online marketplace to compare personal loans and credit cards.


Personal loan vs credit card: what you need to know

When you open a credit card, you’re taking out a revolving line of credit, which means you can borrow the funds as you need them. You will receive a statement at the end of the month with a minimum payment due based on the current amount you owe.

Credit cards basically have a grace period where you won’t be charged interest as long as you pay off the outstanding balance in full. You will be charged interest on any balance carried forward from one month to the next. It’s easy to get trapped in a cycle of credit card debt where you keep spending money on the card faster than you can pay it back.

In comparison, a personal loan is an installment loan, which means that you will receive a single lump sum which you will repay in fixed monthly installments. Personal loans tend to come with a lower interest rate than credit cards, and borrowers with good credit will qualify for the best rates.

You can explore your credit card and personal loan options by visiting Credible’s online marketplace.


When to use a credit card?

Credit cards tend to be best for smaller on-the-go purchases. For example, if you travel regularly for work and are looking for ways to reap the rewards from your credit card, it might be a good idea to get a travel card.

You can take advantage of the unique rewards offered by credit cards, such as cash back or travel miles, all without paying a penny in interest as long as you pay the balance in full before the end of the month. And one of the benefits of using credit cards is the borrower protection that comes with it.

Some credit cards try to entice potential customers by offering a 0% APR introductory offer, which usually lasts up to 18 months. When the introductory interest-free period expires, you will be charged interest on the outstanding balance on your credit card.

These types of credit card offers are usually reserved for borrowers with good credit. If you can qualify for a 0% APR introductory offer on a credit card, it might make sense to place a larger purchase on a credit card, just make sure you have a plan on how you repay the balance.

You can visit an online marketplace like Credible to view multiple credit card options at once.


When to use a personal loan?

Personal loans tend to be best for large, one-time purchases, like a home improvement project. It is also a good option for debt consolidation. You know exactly how much you need to borrow and your monthly payments will be constant. This kind of predictability is one of the main advantages of taking out a personal loan. You can even use a personal loan calculator to estimate your monthly payments.

Since these unsecured loans are only secured by your promise to repay the lender, your eligibility is based on your credit score. Personal loans are best suited for borrowers with a good credit history, but some lenders offer personal loans for bad credit. Even though you may not qualify for the lowest rates on a personal loan, they may still be lower than what you would get with a credit card.

If you want to know what kind of rates you can get on a personal loan, visit Credible to compare potential offers from multiple personal lenders at once.


How to make the right choice for you

Personal loans and credit cards are good financing options, and which one is right for you will depend on how you plan to use the funds. If you’re looking to finance a large one-time purchase or consolidate debt, a personal loan is probably your best bet.

Whereas if you are looking to finance small ongoing purchases, taking out a credit card may be a better option. If you’re not sure where to start, visit Credible to connect with experienced loan officers who can answer all your questions and help you determine your next steps.

Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at and your question might be answered by Credible in our Money Expert column.


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