Personal loans and credit cards both allow you to borrow money and repay it over time, but they aren’t the same. A personal loan is a type of installment debt that typically has a fixed interest rate. Credit cards are revolving debt and usually have variable interest rates that can change over time.
Understanding the key differences between a personal loan vs. credit card debt is critical when you need to borrow. Your decision affects how much you can borrow, the amount of interest you pay, your monthly debt repayment budget, and your credit scores.
Read on to learn how personal loans and credit cards measure up, and what proposed credit card interest rate caps could mean for you.
Table of Contents
Key Points
• Personal loans are installment debt, offering a fixed sum of money and typically featuring a predictable, fixed interest rate for repayment.
• Credit cards operate as revolving debt with a credit limit that increases and decreases as balances are paid and new purchases are charged.
• Loan repayment is structured with a set term and a consistent monthly payment that includes both principal and interest.
• Credit card payments often require only a minimum amount due, which can extend debt payoff and increase total interest costs over time.
• Choosing a personal loan is better when you need a specific amount and prefer a stable monthly budget, while a card offers borrowing flexibility.
What Is a Personal Loan?
A personal loan, also referred to as an installment loan, is a type of loan that lets you borrow a fixed sum of money and repay it over a set period. Personal loans may be secured, which means they’re tied to some type of collateral, but it’s more common for them to be unsecured.
Here are some key characteristics of personal loans:
• Interest rates are most often fixed, which means you don’t have to worry about the rate changing during the loan term.
• Fixed-rate personal loans make it easy to calculate your monthly payment for the entire loan term, as well as the amount of interest you’ll pay.
• Traditional banks, credit unions, and online lenders can all offer personal loans, but there may be differences in loan amounts, interest rates, and fees.
• Loan amounts can range from $500 to $100,000, depending on the lender.
• A typical loan repayment term may be anywhere from 1 to 7 years.
Personal loans allow for flexibility, since you can use them for just about anything. For example, you could get a personal loan to consolidate credit card debt, make home improvements, pay for a wedding, or cover an emergency expense.
Your ability to qualify for a personal loan is most often based on your credit scores, income, and debt-to-income (DTI) ratio. Your DTI measures the percentage of your gross income that goes to debt repayment each month. The lender may also ask about the loan purpose, since some lenders have restrictions on things like using a loan to pay college tuition.
Recommended: What Is Debt Consolidation and How Does It Work?
What Is Credit Card Debt?
Credit card debt reflects the amount someone owes to one or more credit card companies. When you open a credit card account, you have a credit limit, which represents how much you can spend. As you charge purchases to the card, you create debt. Americans collectively owe $1.23 trillion in credit card debt, according to the Federal Reserve’s Household Debt and Credit Report for the third quarter of 2025.
Here are some key characteristics of credit card debt:
• When you charge a purchase, your credit limit shrinks; when you make a payment to your balance, it increases.
• The annual percentage rate (APR) measures the cost of carrying a balance on your card, including interest and fees, over one year. In terms of what is a good APR, lower is always better.
• While it’s possible to find fixed-rate credit cards, rates are usually variable and are tied to a benchmark rate, like the Prime Rate.
• If the benchmark rate increases, your credit card rate can go up.
• Paying only the minimum amount due each month can make it difficult to chip away at your credit card debt.
The average credit card interest rate was 20.97%, as of November 2025, according to Federal Reserve data. High interest rates mean higher costs for borrowers who carry a balance.
In February 2025, Senator Bernie Sanders (D-VT) introduced the 10 Percent Credit Card Interest Rate Cap Act. The proposed legislation would temporarily cap credit card interest rates at 10% and impose penalties on creditors that violate rate cap restrictions. If passed, rate changes would sunset on January 1, 2031.
The bill did not move forward in 2025 and was largely opposed by the banking industry, which argued that it would limit opportunities to provide credit to consumers. In January 2026, President Trump expressed interest in implementing a 10% rate cap on credit card rates nationwide, to last for one year.
What would a 10% rate cap on credit card rates mean for you? Assume you have $10,000 in credit card debt that you want to pay off in 12 months. Here’s how the math compares with and without an interest rate cap.
| Rate Cap | No Rate Cap | |
| APR | 10% | 19.99% |
| Monthly Payment | $887 | $942 |
| Total Interest Paid | $545 | $1,096 |
At the time of writing, it’s unclear whether a rate cap will become a reality or how credit card companies would comply. But it’s a reminder of how impactful your APR can be when it comes to just how much credit card debt can cost you.
Recommended: What Is APR on a Credit Card?
What Is the Difference Between Personal Loan vs Credit Card Debt
A personal loan is a lump sum of money you get all at once and repay in fixed installments. Credit cards let you borrow, pay down the balance, and borrow again. Aside from that, the main differences between personal loan vs. credit card debt are how repayment is structured, how interest is calculated, and the impact to your credit.
Repayment:
• Personal loans have a set repayment term. You make one payment each month on the due date established by your lender. Part of the payment goes toward the principal amount you borrowed, and part of it goes to the interest. Each payment reduces the balance you owe.
• Credit cards require only a minimum payment. When you get your credit card statement each month you’ll see a minimum amount due you need to pay. Just paying the minimums could make it hard to reach your goal of becoming debt-free if you have a high APR, or you’re adding to what you owe with new purchases.
Interest Calculation:
• Personal loans typically use a so-called “simple interest” formula to calculate what you owe in interest. A fixed-rate loan means you never have to guess about what you’ll pay.
• Credit cards more often use a daily periodic rate. What you pay in interest depends on your APR, how much you pay monthly, and whether you continue adding to the balance.
Credit Impact:
• Credit cards usually have a greater impact on credit scores than personal loans. That’s because the balance on a personal loan always goes down over time. That’s not necessarily the case with a credit card, which means your credit utilization — how much or your credit limit you’re using — can rise or fall from month to month. Those fluctuations in credit utilization, along with your payment history, directly impact your credit scores.
The key to how to use a credit card responsibly (or a loan) is to have a plan to repay what you borrow. Having a strategy and a budget that allows you to pay down debt at a steady pace can save you interest and stress in the long run.
Is It Better to Have a Personal Loan vs Credit Card Debt?
For credit scoring, it’s better to have both a personal loan and credit card debt, since it shows lenders that you can use different types of credit responsibly. When it comes to individual features, there are situations where you might prefer a personal loan vs. credit card debt, or vice versa.
| Consider a Personal Loan If You… | Consider a Credit Card If You… |
| Know the exact amount you need to borrow | Want a flexible way to borrow when you need it |
| Prefer a fixed monthly payment for budgeting purposes | Are comfortable with your payment changing month to month |
| Have a specific financial need or goal a loan can fulfill | Would like to earn cash back, miles, or points on purchases |
| Can qualify for a low, fixed interest rate, based on your credit history and income | Can qualify for a card with a competitive APR, based on your credit history |
You could get a personal loan to consolidate credit card debt. In that case, you use the loan proceeds to pay off your credit card balances, then make one payment to the loan until it’s paid off. Debt consolidation with a personal loan can make sense if your new rate is lower than the average APR across all the cards you plan to pay off.
Recommended: Cash-Back vs. Low Interest Credit Card: Key Differences
Pros and Cons of Personal Loans
Personal loans have advantages and disadvantages, just like any other type of debt. If you’re thinking of applying for a personal loan for any reason, it helps to weigh both sides.
Personal Loan Pros:
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Pros:
• Potential for high loan limits — up to $100,000
• Good credit could help you unlock lower rates
• Fixed interest rates offer predictability
• Loan funds can be used for a variety of purposes
• On-time payments can help you build credit
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Cons:
• Poor credit could lead to lower loan limits or higher rates
• Lenders may impose restrictions on how funds can be used
• Origination fees, late fees, and penalties can increase loan costs
Pros and Cons of Credit Card Debt
Credit card debt can be manageable if you’re keeping track of purchases and paying more than the minimum due. There can be drawbacks, however, to using credit to cover expenses. Here are the main pros and cons to know.
Credit Card Pros:
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Pros:
• Credit cards can cover a wide range of purchases
• Some credit cards earn rewards or offer other valuable perks
• Paying in full can help with avoiding interest on credit cards
• On-time payments can help build credit history
• Credit card promotional interest rates can save you money on interest
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Cons:
• Paying only the minimum can keep you in debt longer and increase interest costs
• Late or missed payments, or high credit card balances, can hurt your credit
• High amounts of credit card debt can make you appear risky to lenders
Recommended: Guide to Lowering Your Credit Card Interest Rate (APR)
Example Scenarios for Personal Loans vs Credit Cards
How you use personal loans or credit cards can influence the kind of impact each one has on your financial situation. Let’s consider a few example scenarios.
• You want to finish your basement and make it a usable living space, so you take out a $25,000 personal loan at 12.99%. Over a five-year term, you pay $9,122 in interest but the upgrade adds $17,000 in value to the home.
• Your cat needs emergency surgery and you charge the $5,000 vet bill to a credit card that offers a 0% APR for 12 months. To clear the balance before the introductory rate ends, you’ll need to come up with $417 a month in your budget.
• Your credit card debt has reached $20,000, and you’re worried about how much your 18% APR is costing you. You pay off the card with a five-year personal loan at 12%, saving yourself $4,000 in interest and trimming $55 per month off your monthly payment.
Using a personal loan calculator and credit card interest calculator can help you understand the true cost of borrowing with each financial tool. You can also explore ways to pay off your debt faster by increasing monthly payments, or learn how to lower credit card debt with a consolidation loan.
Recommended: 15/3 Credit Card Payment Method: What It Is & How It Works
The Takeaway
Credit cards can be attractive because they’re often easy to get, and you’re not locked into a set repayment term. Earning rewards on purchases or unlocking travel benefits is also appealing. But it’s important to consider what you’ll pay in interest if you carry a balance. A personal loan is still debt, but it may be less expensive to manage if you’re able to qualify for a low interest rate. Before you apply for any loan or credit card, it’s helpful to compare rates and fees, as well as what you can expect to pay monthly to make sure it fits your budget.
Credit cards have an average APR of 20%–25%, and your balance can sit for years with almost no principal reduction. Personal loan interest rates average 12%, with a guaranteed payoff date in 2 to 7 years. If you’re carrying a balance of $5,000 or more on a high-interest credit card, consider a SoFi Personal Loan instead. See your rate in minutes.
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FAQ
Which is better, a loan against a credit card or a personal loan?
Borrowing with a credit card may be preferable in emergency situations where you need to cover an expense quickly and don’t have time to wait for loan approval or funding. In terms of cost and predictability, personal loans beat credit cards on both counts when you get a low, fixed interest rate.
How much would a $5000 personal loan cost a month?
The amount you’d pay monthly toward a $5,000 personal loan depends on your loan term and interest rate. For example, say you get a 12-month loan at 10%. Your monthly payment would be $440 and you’d pay around $275 in interest total.
Is it better to take a loan or use a credit card?
It’s often better to get a personal loan if you’re able to qualify for a low interest rate. A low, fixed rate makes it easier to estimate your total cost of borrowing and plan for monthly payments in your budget. Credit cards have variable rates that can increase over time if the underlying benchmark rate changes.
How many Americans have $20,000 in credit card debt?
The exact number of Americans with $20,000 in credit card debt is difficult to pinpoint. According to one survey, 1 in 10 households have credit card balances totaling $20,000 or more. TransUnion’s November 2025 Credit Industry Snapshot put the average credit card balance per consumer at $6,555.
Do personal loans affect credit score?
Personal loans affect your credit scores in a few ways. A new hard inquiry can show up on your credit report when you apply for a loan, which can cost you a few points. Your payment history also counts, with on-time payments helping your score and late payments hurting them.
When is it better to have a personal loan over credit card debt?
It’s better to have personal loan debt vs. credit card debt if your loan has a low interest rate and the payments are manageable for your budget. You may also prefer a personal loan over a credit card if you’d like to know what your payment will be month to month.
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