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Both personal loans and credit cards provide access to extra funds and can be used to consolidate debt. However, these two lending products work in very different ways.
A credit card is a type of revolving credit. You have access to a line of credit and your balance fluctuates with your spending. A personal loan, by contrast, provides a lump sum of money you pay back in regular installments over time. Depending on your needs and financial situation, a personal loan may be an option for larger, one-time expenses, while a credit card may be useful for smaller or recurring purchases, particularly when the balance can be paid in full each month.
Here’s a closer look at how credit cards and personal loans compare, their advantages and disadvantages, and when to choose one over the other.
Key Points
• Personal loans provide funds in a lump sum and are repaid in installments over a set term. Many personal loans have fixed interest rates.
• Credit cards provide access to revolving credit that can generally be reused as the balance is repaid, up to the card’s credit limit.
• Depending on your qualifications and available terms, a personal loan may be an option for larger, one-time expenses or debt consolidation.
• Credit cards may be useful for smaller or recurring purchases, and some cards offer rewards or introductory APR promotions.
• When comparing a personal loan and a credit card, you may want to consider factors such as APR, fees, repayment terms, monthly payments, and total borrowing costs.
Personal Loans, Defined
A personal loan is a type of installment loan available through banks, credit unions, and online lenders. You receive the loan proceeds in one lump sum and repay the loan, plus interest and any applicable fees, through scheduled payments over a set term. Personal loans can generally be used for a variety of purposes, including debt consolidation, home improvements, and large purchases.
Lenders generally offer loans from $1,000 to $50,000 or $100,000, with repayment terms of two to seven years.
Personal loans are typically unsecured, meaning you don’t have to provide collateral (an asset of value) to guarantee the loan. Instead, lenders look at factors like credit score, debt-to-income ratio, and cash flow when assessing a borrower’s application.
Unsecured personal loans typically come with fixed interest rates, which means your payments will be the same over the life of the loan. Some lenders offer variable rate personal loans, which means the rate, and your payments, can fluctuate depending on market conditions.
Personal loans generally work best when they are used to reach a specific, longer-term financial goal. For example, you might use a personal loan to finance a home improvement project that increases the value of your home. Or, you might consider a debt consolidation loan to help you pay down high-interest credit card debt at a lower interest rate.
Recommended: Personal Loan Calculator
Personal Loan vs. Credit Card: Key Differences
A personal loan and a credit card are two different ways to borrow money. A personal loan is an installment loan that provides funds in a lump sum and is repaid over a set term, while a credit card provides revolving credit that can be used repeatedly up to the credit limit. Depending on the your needs and qualifications, a personal loan may be an option for a larger, one-time expense or when predictable payments and a defined repayment period are priorities. A credit card may be useful for smaller or recurring purchases and can offer benefits such as rewards or promotional APRs.
• Unlike a personal loan, a credit card is a form of revolving debt. Instead of getting a lump sum of money that you pay back over time, you get access to a credit line that you tap as needed. You can borrow what you need (up to your credit limit), and only pay interest on what you actually borrow.
• Interest rates for personal loans may be fixed or variable, depending on the lender and loan terms, while credit cards commonly have variable APRs. The APR available to you can depend on the financial product, lender or card issuer, your qualifications, and other factors.
• Credit cards are also unique in that they can offer rewards and, in some cases, may come with a 0% introductory offer on purchases and/or balance transfers (though there is often a fee for a balance transfer).
| Personal Loan | Credit Card | |
|---|---|---|
| Type of credit | Installment Loan | Revolving Credit |
| How funds are received | Lump sum | Access to a credit line |
| Repayment | Scheduled payments over a set term | Payments vary based on balance and card terms |
| Interest rate | Often fixed, depending on the loan | Often variable |
| Collateral | Many personal loans are unsecured | Most credit cards are unsecured |
| Reusing available credit | Generally requires a new loan | Available credit can generally be reused as the balance is repaid |
| Potential use | May be considered for larger, one-time expenses | May be useful for smaller or recurring purchases |
| Rewards | Generally not offered | Some cards offer rewards |
| Promotional APR | Generally not offered | Some cards offer introductory APR promotions |
Recommended: Requirements for Personal Loans
Line of Credit vs Loan
A line of credit, such as a personal line of credit or home equity line of credit (HELOC), is a type of revolving credit. Similar to a credit card, you can draw from a line of credit and repay the funds during what’s referred to as the draw period. When the draw period ends, you’re no longer allowed to make withdrawals and would need to reapply to keep the line of credit open.
Loans, such as personal loans and home equity loans, have what’s called a non-revolving credit limit. This means the borrower has access to the funds only once, and then they make principal and interest payments until the debt is paid off.
Consolidating Debt? Personal Loan vs Credit Card
Using a new loan or credit credit card to pay off existing debt is known as debt consolidation, and it can potentially save you money in interest.
Two popular ways to consolidate debt are taking out an unsecured personal loan (often referred to as a debt or credit card consolidation loan) or opening a 0% interest balance transfer credit card. These two approaches have some similarities as well as key differences that can impact your financial wellness over time.
Using a Credit Card to Consolidate Debt
Credit card refinancing generally works by opening a new credit card with a high enough limit to cover whatever balance you already have. Some credit cards offer a 0% interest rate on a temporary, promotional basis — sometimes for 18 months or longer.
If you are able to transfer your credit card balance to a 0% balance transfer card and pay it off before the promotional period ends, it can be a great opportunity to save money on interest. However, if you don’t pay off the balance in that time frame, you’ll be charged the card’s regular interest rate, which could be as high (or possibly higher) than what you were paying before.
Another potential hitch is that credit cards with promotional 0% rate typically charge balance transfer fees, which can range from 3% to 5% of the amount being transferred. Before pulling the trigger on a transfer, consider whether the amount you’ll save on interest will be enough to make up for any transfer fee.
Using a Personal Loan to Consolidate Debt
Debt consolidation is a common reason why people take out personal loans. Credit card consolidation loans offer a fixed interest rate and provide a lump sum of money, which you would use to pay off your existing debt.
If you have solid credit, a personal loan for debt consolidation may come with a lower annual percentage rate (APR) than what you have on your current credit cards. For example, the average personal loan interest rate as of late 2025 is 12.25% percent, while the average credit card interest rate is now 20.03%. That difference should allow you to pay the balance down faster and pay less interest in total.
Rolling multiple debts into one loan can also simplify your finances. Instead of keeping track of several payment due dates and minimum amounts due, you end up with one loan and one payment each month. This can make it less likely that you’ll miss a payment and have to pay a late fee or penalty.
Both 0% balance transfer cards and debt consolidation loans have benefits and drawbacks, though credit cards can be riskier than personal loans over the long term — even when they have a 0% promotional interest rate.
When Might You Consider a Credit Card Instead of a Personal Loan?
Credit cards can work well for smaller, day-to-day expenses that you can pay off, ideally, in full when you get your bill. Credit card companies only charge you interest if you carry a balance from month to month. Thus, if you pay your balance in full each month, you’re essentially getting an interest-free, short-term loan. If you have a rewards credit card, you can also rack up cash back or rewards points at the same time, for a win-win.
If you can qualify for a 0% balance transfer card, credit cards can also be a good way to consolidate high interest credit card debt, provided you don’t have to pay a high balance transfer fee and you can pay the card off before the higher interest rate kicks in.
With credit cards, however, discipline is key. It’s all too easy to charge more than you can pay off. If you do, credit cards can be an expensive way to borrow money. Generally, any rewards you can earn won’t make up for the interest you’ll owe. If all you pay is the minimum balance each month, you could be paying off that same balance for years — and that’s assuming you don’t put any more charges on the card.
When Might You Consider a Personal Loan Instead of a Credit Card?
Depending on your needs, qualifications, and available terms, a personal loan may be an option for covering a larger, one-time expense, such as a car repair, home improvement project, large purchase, or wedding. A personal loan may also be used to consolidate multiple debts into one loan and payment.
A fixed-rate personal loan generally has scheduled principal and interest payments that remain consistent over the loan term. Personal loans are also repaid over a set term, giving you a defined repayment schedule. By comparison, credit cards provide revolving credit, and payments may vary based on your outstanding balance, APR, and other card terms.
When comparing a personal loan and a credit card, you may want to consider factors such as APR, fees, monthly payments, repayment period, and total borrowing costs, as well as how you plan to use and repay the funds. The rates and terms available to you can depend on factors including your credit history, income, debt-to-income ratio, lender, and other factors.
Recommended: Using a Personal Loan to Pay Off Credit Card Debt
The Takeaway
When comparing personal loans vs. credit cards, keep in mind that personal loans usually have lower interest rates (unless you have poor credit) than credit cards, making it a better choice if you need a few years to pay off the debt. Credit cards, on the other hand, can be a better option for day-to-day purchases that you can pay off relatively quickly.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.
FAQ
Is it better to have a personal loan than a credit card?
Typically, credit cards carry a higher interest rate than personal loans, but each financial product has its pros and cons. Consider your situation and the particular use you have in mind for the funds to make the right decision or your needs.
Is it better to apply for a personal loan or a credit card?
Whether a personal loan or a credit card is best for you depends on your needs and your financial situation. Typically, personal loans have lower interest rates and can be appropriate for large expenditures. Credit cards can be convenient for daily spending, but it’s best to pay your balance in full every month to avoid high interest charges.
What are the cons of personal loans?
The downsides of personal loans can include possible high fees and interest rates (which usually depend on your credit score). In addition, if not managed responsibly, a personal loan could damage your credit score.
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