A personal loan gives you a lump sum that has to be paid back by a certain date and generally offers a lower interest rate than a credit card.
Jump to insightCredit cards are revolving credit, letting you borrow as you need to and repay as you go.
Jump to insightPersonal loans are sometimes useful as a tool to consolidate and pay down credit card debt.
Jump to insightWhen to get a personal loan
A personal loan is a type of installment loan. You receive a lump sum upfront that you must pay back in installments with interest, and you know the payoff date and the total loan cost from the start.
Getting a personal loan may make sense if you need to make an expensive one-time purchase — for example, fixing the roof on your house, going on a bucket-list vacation or replacing the transmission in your car. However, there are some things you may not be able to use a personal loan for, like college tuition (depending on your lender).
Ideal use cases for a personal loan
A personal loan is ideal when you:
- Need to fund a large, one-time purchase or emergency expense
- Want to consolidate high-interest credit card debt into a single fixed-rate payment
- Plan to remodel your home or pay for a wedding
- Need to finance a major move or relocation
- Prefer predictable monthly payments with a clear payoff date
Pros and cons of personal loans
Pros
- Typically lower interest rates than credit cards
- Funds come in one lump sum
- Predictable monthly payments
- Can be used for almost anything
- Less temptation to overspend than with credit cards or other lines of credit
- Secured personal loans can help borrowers with bad credit access funds
Cons
- High rates for fair-to-bad credit borrowers
- Not as useful for frequent small purchases, such as groceries or gas
- No rewards or cash back
When to get a credit card
A credit card is a revolving line of credit with a limit. Most credit cards have variable interest rates, but you only pay interest on the money you use and don’t pay back on time. Credit cards are convenient to use for small purchases like groceries and monthly bills. And if you’re able to pay the bill in full each month, you won’t even pay interest on the money you “borrow.”
Ideal use cases for a credit card
A credit card is ideal when you:
- Want to earn rewards or cashback on everyday spending
- Can reliably pay off your balance each month to avoid interest
- Need a financial safety net for emergencies
- Prefer the convenience of paying for recurring expenses like streaming services or utilities
- Want to build or improve your credit score over time
Pros and cons of credit cards
Pros
- Funds available as needed
- No interest if you pay in full every month
- Access to rewards like cash back and airline miles
- Borrowers with no credit or bad credit can qualify for select cards
- Potential 0% APR promotional periods
- Can also be used for balance transfers
Cons
- Higher APRs mean borrowing can be more expensive
- Easy to purchase goods and services you can’t afford
- Credit card processing fees at some establishments
Comparing interest rates and fees
Interest rates and fees can vary significantly between personal loans and credit cards, so it's important to understand how each works.
Personal loans typically offer lower interest rates than credit cards, especially for borrowers with good or excellent credit. Rates for personal loans can range from about 6% to 36%, depending on the lender and your credit profile. Most personal loans come with fixed rates, meaning your monthly payments stay the same throughout the life of the loan.
Credit cards generally have higher interest rates, with average APRs often exceeding 20%. However, some credit cards offer introductory 0% APR promotions for new cardholders, which can be helpful for short-term borrowing if you can pay off the balance before the promotional period ends.
In addition to interest, you should consider fees. Personal loans may have origination fees ranging from 1% to 10% of the loan amount, while credit cards may charge annual fees, balance transfer fees and late payment fees. Choosing the right option means factoring in both the interest rate and the full cost of borrowing over time.
Are personal loans better than credit cards?
Personal loans and credit cards both serve a useful purpose, and which is better for you depends on your situation. If you anticipate a large, one-time expense, you probably want a personal loan. Borrowers with good-to-excellent credit scores should have little trouble securing a personal loan with a lower interest rate than a credit card. In those cases, using a loan for a larger expense could be cost-effective.
Credit cards are generally better for regular, everyday use. If you’re able to pay the bill in full each month, you can avoid interest entirely. You could even end up making money in the form of airline miles, cashback rewards and other perks. Personal loans don’t offer these bonuses.
Should I consolidate my debt?
Borrowers often run into trouble with credit cards when they pay only the monthly minimum but keep making purchases. This debt can quickly snowball and become unmanageable.
This is where taking out a personal loan for debt consolidation can sometimes be a useful tool for paying down debt. It’s worth mentioning that you can also consolidate debt with a balance transfer credit card, but it may be more difficult.
“The advantage of consolidating the debt from a credit card to a personal loan is to take a high-variable rate with high payments and convert it to lower fixed rate debt with a lower installment per month,” explained Andrew Gold, a financial advisor at Prestige Wealth Management.
A reviewer from Texas felt like they were drowning in credit card debt and turned to a personal loan for help consolidating that debt: “They looked up all the credit cards that I was backed up on — not only mine, but my spouse as well — and we combined them all. They gave me one payment a month and it was something I could afford at the time. The program worked well. My total debt was $70,000 and I'm down to $6,000.”
» WHICH MAKES SENSE? Personal loan vs. debt consolidation
Things to consider before consolidating credit card debt
In this reviewer’s case, debt consolidation worked as intended, but Gold warned that those who go down this road have to be prepared to change the habits that got them into trouble in the first place. “You have to really be honest with yourself about how you got into the situation,” he said.
Where a consolidation loan isn't helpful (and can even be harmful) is when borrowers still don’t stop making credit card purchases they can’t afford. “It will just be a Band-Aid and temporary fix,” said Gold, adding that you can end up with even larger debt.
Before you consider consolidating, be sure you can afford the monthly loan payment and that you can stop using credit cards until the personal loan is completely repaid. If you can’t, you may wind up with more debt than you had when you started.
FAQ
What does credit score have to do with getting a personal loan or a credit card?
Lenders will consider your credit score when evaluating your personal loan or credit card application. Your credit score can affect whether you get approved, as well as the interest rate and loan terms offered.
What is a “payday” loan?
A payday loan is a short-term, high-interest loan that gives you a cash advance on your next paycheck. These loans are often for $500 or less, and the interest rates on them can be exorbitant.
How do personal loans and credit cards impact my credit score?
Both personal loans and credit cards can influence your credit score, but in different ways. A personal loan adds to your credit mix and can help boost your score if you make on-time payments consistently. Because it’s an installment loan, it doesn’t affect your credit utilization ratio — one of the key components of your score.
Credit cards, on the other hand, do impact your credit utilization. High balances compared to your credit limit can hurt your score, while keeping balances low can improve it. Like with personal loans, making payments on time is crucial. Using both types of credit responsibly can contribute positively to your overall credit health.
What is predatory lending?
“Predatory lending is a type of lending that takes advantage of consumers who are in a vulnerable financial situation,” explained financial coach Michael Ryan. “This can include things like offering loans with high interest rates, fees and terms that are designed to trap the borrower in a cycle of debt.”
Bottom line
Personal loans and credit cards are two ways to borrow money for upcoming purchases or existing bills. Personal loans are a lower-interest way to finance larger, one-time expenses, such as car repairs or home improvement projects. Credit cards generally come with higher interest rates but also some perks; when you stick to your budget, you can reap rewards without paying any interest.
When consumers get into trouble with runaway credit card debt, a personal loan is often a simpler way to consolidate several smaller debts into a single account with a lower interest rate and one monthly payment.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Consumer Financial Protection Bureau (CFPB), “What is a Payday Loan?” Accessed Aug. 5, 2025.
