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Personal Loan vs. Credit Card Loans

Matthew Levy Updated: June 27, 2023 • 5 min read

There are plenty of reasons why a person might need to borrow money—which is consumers in the United States currently hold about 15.2 trillion worth of debt. Whether you are borrowing debt to pay for a sudden expense (medical bills, house fixes, etc.), finance a major investment, or simply improve your financial situation, you’ll likely have several options available.

If you explore your financing options, you’ll probably need to decide whether personal loans vs. credit card debt makes the most sense. As you’d probably expect, both personal loans and credit cards have their share of benefits and drawbacks, so it is essential to consider all options seriously.

Personal Loan vs. Credit Card Pros and Cons

  Personal Loan Credit Card
Interest Rates Usually Lower Usually Higher
Ease of Acquisition More Difficult Less Difficult
Credit Type Lump-Sum Rolling Credit
Best For Borrowing Large Amounts Acquiring Benefits


A personal loan is a type of loan paid at a predetermined rate over a predetermined amount of time. In most cases, when you take out a personal loan, you can use the money for whatever you want—as long as you keep making your payments.

Compared to credit cards, personal loans typically have a lower interest rate, which means you’ll pay less to borrow the money over time. Additionally, the fixed payment structure with most personal loans makes it easy to anticipate just how much you’ll need to pay each month. These loans are also great if you need to borrow a large amount of money or are otherwise looking to consolidate debt.

At the same time, personal loans might be expensive or difficult to acquire if your credit isn’t great. The lack of flexibility might also turn away some applicants, as you’ll be expected to make the monthly payment regardless of how much you spend. This is why credit cards are often considered a fallback option.

On the other hand, credit cards involve borrowing from a rolling line of credit—you borrow what you need when you need it and, as long as you make your payments before the next billing cycle, you can pay back your borrowings as needed without interest. If your debt rolls into the next month, you’ll receive an interest charge.

Credit cards are desirable because they offer high amounts of flexibility, can potentially offer rewards like cash back or airline points, and are usually reasonably easy to qualify for. There are currently an estimated 1.1 billion credit cards used in the United States or about four for every American adult. However, these cards might also carry annual fees and higher interest rates, and not to mention, it is easy to get into a large amount of credit card debt without a proper plan.

Ultimately, a personal loan vs. credit card debt is right for you will depend on several factors, including why you hope to borrow and your current financial situation.

What Bearing Does Personal Loan vs. Credit Card Have on Credit Score?

Your credit score, in general, is a brief snapshot representing your ability to borrow money and pay it back on time. Ultimately, this score will affect many components of your financial well-being, including the interest rates you’ll pay for credit cards v personal loans and even whether you’ll be able to do things such as qualify for a mortgage.

In almost all cases, any personal loan or credit card you obtain will impact your credit score. At the beginning of the application process, lenders might conduct a “hard inquiry,” which will (temporarily) knock your score down by a few points. However, whether a credit card or personal loan will affect your credit score, in the long run, will depend on whether you make your payments as planned.

There are five primary components of your credit score: payment history, the amount owed, length of history, credit mix, and new credit. Once you open a new account, your score will temporarily drop. But if you can keep making payments in full and on time, and even get ahead with payments when possible, your score will improve and might even end up better than it was before applying for new debt.

Personal Loans vs. Credit Cards for Debt Consolidation

Debt consolidation is a process that involves taking multiple sources of debt and turning them into a single (or at least fewer) source of debt—often at a discount. There are numerous ways to consolidate debt, including using both new personal loans and credit cards.

When comparing credit card consolidation vs. personal loan consolidation, there are several things you’ll want to keep in mind. In general, personal loans are better for larger amounts of debt. At the same time, credit cards might be more effective for consolidating smaller debts, especially if these debts came from other higher interest rate cards. You should also consider your expected payback period, the available interest rates, and whether you’ve exhausted existing lines of credit.

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Credit Card vs. Personal Loan: Which Should You Use

Whether a credit card or personal loan will make the most sense for you will depend on several variables—the answer that makes the most sense for one person might not make the most sense for another. Start by taking a close look at your personal finances, including summarizing all existing accounts, looking at your interest rates, and clearly defining your long-term financial goals.

Generally speaking, personal loans are ideal for people who need to borrow a large amount and want to manage their debt payback over time efficiently. Personal loans are often for specific uses, such as home improvements, vacations, or starting a business. Interest rates are typically lower, though, depending on your credit score.

Credit cards are better for paying for smaller debts. If you can pay down your credit card balance every month, you can effectively borrow money interest-free while earning certain benefits.


Debt is helpful for many things, and it also comes in many forms. Both personal loans and credit cards, when used responsibly, can help you achieve your general financial goals. Whether you use a credit card to rack up some airline points to cash in before your next vacation or a personal loan to consolidate several other high-interest debts, using both can be advantageous in the long run. Just be sure to explore all options available before making any final commitments.

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Written by Matthew Levy

Matthew is a freelance financial copywriter with 14+ years in financial services. He holds a Bachelor of Science degree in Economics with business and finance options and is a CFA Charterholder. He is from Vancouver, Canada, but writes from all over the world.