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If you’re looking to pay for a big-ticket item or tackle high-interest debt, you might be considering a credit card or personal loan.
Here’s how to determine when it’s best to use a personal loan or credit card:
|If you need a large sum of money
If you need to borrow a larger amount, a personal loan will have you covered. Credit card limits aren't usually as high as personal loan limits, so only use a credit card when you have a smaller expense.
|If you need a set monthly payment
Personal loans have fixed rates, so you'll always know exactly how much to budget for every month. Credit cards, on the other hands, have variable rates that can fluctuate, so your monthly payment can change.
|If you need time to pay it off
If you need more time to pay your loan off, a personal loan is your best bet. If you can pay the whole amount off in a year or less, however, getting a 0% balance transfer card and paying it off completely before the promotional period ends is the smartest idea. But first, factor in the balance transfer fee to ensure it's worth it.
|If you need to consolidate debt
Personal loans typically have lower interest rates than credit cards, so a loan would usually be your best option when it comes to debt consolidation.
|If you need funds immediately
Although you can get funds from some personal loan lenders as soon as the next business day, sometimes it can take up to 7 days. So if you need funds immediately, and already have a credit card you can use, a credit card will be your quickest option.
Still need help deciding between a personal loan and credit card?
When to use a personal loan
If you’re trying to decide, here are a few reasons to choose a personal loan:
- You need to consolidate debt
- You’re making a big purchase
- You want to protect your credit utilization
You need to consolidate debt
A debt consolidation loan is a type of personal loan that you can use to pay off debt — such as credit cards, medical bills, or other loans. This leaves you with just one loan and payment to manage.
Depending on your credit, you might get a lower interest rate on a personal loan for debt consolidation than what you’re currently paying on other debts.
If you decide to take out a personal loan for debt consolidation, be sure to consider as many lenders as possible to find the right loan for your needs.
Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.
You are making a big purchase and want a lower interest rate
With a personal loan, you can typically borrow $600 up to $100,000 or more, depending on the lender. This could be helpful if you need to make a big purchase and would like to spread your payments out over time.
Also remember that personal loan interest rates tend to be lower than rates on credit cards, so if you need to cover a big purchase, you’ll likely save more on interest by using a personal loan.
If a personal loan seems like the right fit for your needs and you’re ready to start loan shopping, Credible can help.
You can see your prequalified rates from our partner lenders in the table below in just two minutes.
|Min. credit score
|Loan terms (years)
|9.95% - 35.99% APR
|$2,000 to $35,000**
|2, 3, 4, 5*
|8.99% - 35.99% APR
|$2,000 to $50,000
|2, 3, 4, 5
|7.99% - 24.99% APR
$2,500 - $40,000
|3, 4, 5, 6, 7
|11.72% - 17.99% APR
|$3,000 to $40,000
|2, 3, 4, 5
|9.57% - 35.99% APR
|$1,000 to $40,000
|7.99% - 35.99% APR
|$2,000 to $36,500
|2, 3, 4, 5, 6
|18.0% - 35.99% APR
|$1,500 to $20,000
|2, 3, 4, 5
|11.69% - 35.99% APR7
|$1,000 to $50,000
|8.49% - 35.99% APR
|$1,000 to $50,000
|2, 3, 5, 6
|7.8% - 35.99% APR4
|$1,000 to $50,0005
|3 or 5 years4
You want to protect your credit utilization
One of the biggest factors of your credit score is your credit utilization — this is the amount you owe on revolving credit lines (such as credit cards and lines of credit) compared to your total credit limits. It’s a good idea to keep your credit utilization below 30% to keep your credit score as healthy as possible.
If you need to make a large purchase that would max out your credit cards, your credit score could end up taking a hit. But if you take out a personal loan to cover your expense, you can use the full loan amount with no effect on your credit utilization.
If you’d like to get a personal loan, remember to compare as many lenders as possible to find the right loan for you. This is easy with Credible: You can see your prequalified rates from multiple lenders in two minutes — with no effect on your credit.
When to use a credit card
If you’re trying to decide, here are a few reasons to choose a credit card:
You’re making a small purchase
If you have a small purchase or can afford to pay the balance off, a credit card can be a better idea.
But you want to make sure you can afford to pay off your credit cards at the end of each pay period. If not, and you carry a balance over to the next month, you could face high interest charges and fees.
Learn More: How to Pay Off Credit Card Debt Fast
You can avoid paying interest
Credit cards tend to have some of the highest interest rates — however, you might not have to pay interest if you use your card wisely. Two ways to do this include:
- Paying your card off in full each month: This is the best way to avoid credit card interest while also staying on top of your spending.
- Using a card with a 0% APR offer: Some credit cards come with a 0% APR introductory offer, which means you could avoid interest charges if you repay your balance before this period ends. However, if you can’t pay off the card in time, you could be stuck with some hefty interest charges.
You want convenience and added perks
Paying with a credit card is easy and convenient — especially if you already have one on hand and don’t need to apply for a new one. If you’re savvy, you can also maximize rewards from purchases by making sure you’re using the best card for your purchase. Sometimes you’ll get cash back, a statement credit, or points toward travel and lodging.
Although rewards shouldn’t be the main reason for using a credit card, they can be a nice added perk if you decide a credit card is your best choice.
Personal loan vs. credit card: Which is right for you?
If you’ve got a small balance to pay off, a quick credit card transaction is easy and seamless. As long as you pay off the balance at the end of the month, a credit card is the better choice.
But if you’ve got a major expense and expect you’ll need some time to pay off the balance (like three to five years), consider taking out a personal loan instead.
The bottom line is that no matter your choice, be sure to adjust your budget and make room for a new expense. Think about adding a calendar reminder to make sure you don’t forget about payment due dates — and responsibly pay off your debt.
If you decide to take out a personal loan, remember to consider as many lenders as possible to find the right loan for your needs. Credible makes this easy — you can compare your prequalified rates from multiple lenders after filling out a single, two-minute form.
Loan and credit card alternatives
If a personal loan or credit card don’t seem right for you, here are some alternatives to consider:
- Home equity loan: If you’re a homeowner, you could tap into your home’s equity with a home equity loan. This type of loan is secured by your house, so you’ll likely get a lower interest rate than you’d get with a personal loan or credit card. However, if you can’t keep up with your payments, you risk losing your home.
- HELOC: A home equity line of credit (HELOC) is another way for homeowners to access the equity in their homes. Unlike a home equity loan that’s paid out as a lump sum, a HELOC is a type of revolving credit line that can be repeatedly drawn on and paid off — similar to a credit card. Just remember that if you don’t make your payments, your house could be seized by the lender.
- Cash-out refinancing: With this type of loan, your existing mortgage is paid off and replaced by a new loan with a higher loan amount than what you owe on your home. You’ll get the difference as a lump sum that you can use how you wish. Cash-out refinancing tends to come with lower rates than personal loans and credit cards. However, keep in mind that you’ll have to go through the mortgage approval process again if you apply, which could take several days or weeks. Additionally, like with home equity loans, the lender could foreclose on your house if you fail to make your payments.
Keep Reading: How to Lower Credit Card Interest Rates: 4 Options
About Rates and Terms: Rates for personal loans provided by lenders on the Credible platform range between 5.20%-35.99% APR with terms from 12 to 144 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 12%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 11.51%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of October 9, 2023, none of the personal loan lenders on our platform require a down payment nor do they charge any prepayment penalties.