Personal Loan vs. Credit Card: Which Is Better?

When the going gets tough and you don’t have enough savings to finance your expenses, you may need to consider financing options. There are many different types of financing methods, such as personal loans and credit cards.

Both of these options can help fund your purchases and other expenses. However, they have very different repayment terms. 

Therefore, it’s important to understand the differences between personal loans and credit cards so you can make the right financial decision according to your needs. Read on to learn more about these differences in this personal loan vs. credit card comparison guide.

Personal Loan vs. Credit Card Debt: The Ultimate Comparison

Personal loans and credit cards are two different types of credit. A personal loan is an installment loan that offers a lump sum of money that can be repaid every month in the form of installments. 

But with a credit card, you get a line of credit that you can use for purchases as you need. The available credit then replenishes every time you repay an outstanding amount, which is calculated according to your expenditure.

Let’s take a deeper look into these two so you can make an informed financial decision.

When to Get Personal Loans

Personal loans are installment loans that offer a lump sum of money at once. You can repay the loan in the form of installments over the course of your loan term. In order to acquire a personal loan, you can pre-qualify with your lender to get an idea of the rates and terms you’ll get.

Personal loans usually come with APRs of up to 36%. The lower your credit score and debt-to-income (DTI) ratio, the better APR you will get. 

If you are planning on getting a personal loan, make sure it is the right option for you. A personal loan is ideal for people who:

• Can acquire lower APRs based on their credit scores. 
• Need to finance larger expenses.
• Need to consolidate high-interest debts such as credit card debts.
• Can afford monthly installments to repay the loan amount. 

Pros and Cons of Personal Loans

Below, we have mentioned the pros and cons of personal loans so you can decide whether they’re the right type of credit for you.

Pros:

• Lower APRs as compared to credit cards.
• Higher loan amount.
• Fixed monthly payments.
• One lump sum.
• No collateral is required.

Cons:

• Higher APRs against bad credit.
• No credit line to borrow from as you need.
• Monthly payments may be hard to manage for some.

When to Get Credit Cards

A credit card is a type of revolving credit that offers continuous access to a line of credit. Unlike personal loans that offer a lump sum of money, you get a specific credit limit on your credit card with minimum monthly payments as low as 2%.

If you fail to pay the minimum due on your credit card, it can prove to be an expensive debt for you due to accumulated interest costs. Credit cards have higher interest rates as compared to personal loans and if you have a high balance, it can affect your credit score badly.

If you are planning on applying for a credit card, make sure it is the right option for you. It is ideal for you if you:

• Want to make smaller, regular purchases.
• Can afford to pay off the full balance every month.
• Are looking for short-term financing.

Pros and Cons of Credit Cards

Below, we have mentioned the pros and cons of credit cards so you can decide whether they’re the right type of debt for you.

Pros:

• Continuous funding at your disposal.
• Rewards and promotions for excellent cardholders.
• Interest-free funding if you pay off the entire balance each month.

Cons

• Higher APRs than personal loans.
• Processing and annual fees.
• May not be accepted everywhere.

Also check out our comparison of cash advance vs. personal loans.

Credit Card vs. Personal Loan: What to Choose?

The decision to choose a personal loan or a credit card depends on your specific financial situation, your creditworthiness, and your needs. If you need to consolidate an existing credit card debt, it’s better to opt for a personal loan as it has a lower interest rate.

But before you do that, make sure to check your credit score. If your credit score is good, you can get a low-interest personal loan to consolidate your debts. Most lenders don’t accept bad credit and even if they do, you will get a higher APR on your loan.

However, Cash in Minutes offers personal loans to everyone in need. Even if you have bad credit, you can apply for a personal loan at Cash in Minutes. We offer bad credit loans to anyone in need. 

So don’t let bad credit hold you back. Use our personal loan calculator to calculate the monthly payments you’ll get and apply for a personal loan today.