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Personal Loan Vs. Credit Card: What’s The Best Option?

Hanna Kielar8-Minute Read
UPDATED: June 03, 2024


When deciding whether to use a personal loan or a credit card to cover an emergency or otherwise time-sensitive expense, you have a lot to consider. Choosing the right type of loan or other financing option for you may come down to factors such as interest rates, fees and your financial situation.

Take a look as we compare personal loans versus credit cards. We’ll discuss when one is typically better than the other, the pros and cons of each, and some alternative financing options that may work better for you.

Using A Loan Vs. A Credit Card

Both personal loans and credit cards allow you to borrow a predetermined amount of money that you pay off over time. The main differences are in the repayment plans and how you borrow the funds.


Personal Loan

Credit Card

Type of loan

Installment loan

Revolving credit

Loan amount

$1,000 – $50,000 (up to $100,000 in rare cases)

Varies based on your credit score and card issuer


Lump-sum payment

Access to a revolving line of credit

Interest rate average

10% – 15% (for those with good to excellent credit)



Monthly payments, typically with a fixed interest rate

Monthly bills, variable amounts based on how much you spend


Possible origination fee as well as potential late and prepayment fees

Annual and late fees, plus potential balance transfer, cash advance and foreign transaction fees

A personal loan typically comes in a lump-sum amount that you receive when your application is approved. You pay back the loan in monthly installments – usually the same amount each month because you have a fixed interest rate. Lenders consider your account closed once you pay off your loan over an agreed-upon term, and you’ll need to submit another application if you want to borrow more money.

A credit card is also a loan, in a sense. Lenders look at a credit card as revolving debt – that is, you get a line of credit that allows you to borrow money up to a certain limit as often as you want. You can pay the entirety of the balance each billing cycle or carry a balance and pay interest. As long as the amount you want to borrow is under your credit limit, you can keep using your card for an indefinite period of time.

Both personal loans and credit cards can take the form of unsecured or secured debt, although in most cases, neither is secured. When you’re approved for an unsecured loan, it means the creditor qualifies you based on your creditworthiness, or ability to pay back the loan on time. Secured debt, on the other hand, means you need to back your loan with collateral – like a car or money down – so the lender can minimize some of the risk associated with loaning you money. Although it depends on your type of personal loan and credit situation, you probably won’t need to offer up collateral to be approved for a personal loan or credit card.

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When To Use A Personal Loan Vs. A Credit Card

There’s no way to know for sure whether a personal loan or credit card will work better for you and your situation. However, it makes sense in certain situations to choose a personal loan over a credit card, and vice versa. Let’s break down what both options bring to the table.

When To Use A Personal Loan

A personal loan can be used to consolidate debt, pay for home improvements and meet various other needs.

Personal loans are best for those who:

  • Have many high-interest loans and want to consolidate their debt
  • Require cash for a large, one-time expense
  • Have a decent credit score
  • Have the ability to keep up with fixed, monthly payments

Borrowers with good to excellent credit tend to qualify for better rates, particularly if they have a credit score of 600 – 700. Apart from your credit score, lenders look at your debt-to-income ratio (DTI) to determine your ability to pay back a new loan.

Getting a personal loan is a generally straightforward process if you know how much cash you need, qualify for a good interest rate and choose the right lender. Once approved, you can  expect to likely receive your funds in 1 – 7 business days.

Rocket Loans℠ can sometimes offer borrowers same-day financing for personal loans, so you may see your money the same day you’re approved.*

When To Use A Credit Card

Often involving a smaller sum of money than a personal loan, a credit card is best used for expenses a borrower will have the money to cover not long after making purchases.

Credit cards are an attractive option for those who:

  • Need financing for smaller, everyday expenses
  • Can pay off their full balance every month
  • Qualify for promotional offers
  • Are interested in earning rewards like cash back or points toward travel

With a credit card, you generally can’t borrow as much as you can with a personal loan, and you probably won’t use your credit card on everything.

Credit cards can be a more flexible payment option than a personal loan since you can pay the minimum amount due or the entire balance at the end of each billing cycle. It’s best to pay as much as possible, though, since you’ll ultimately pay more in interest if you don’t pay the full balance.

If you have excellent credit, you can qualify for rewards credit cards or cards that offer a 0% introductory annual percentage rate (APR) – allowing you to pay down your debt interest-free as long as you do so within the card’s specified period, typically 6 – 21 months.

Credit Card Vs. Personal Loan Interest

One area where personal loans and credit cards tend to differ is their interest rates. The average interest rate for credit cards was 20% in the first week of January 2023, while the average interest rate for a personal loan was 10% – 15% in the final week of 2022 for those with good to excellent credit. Interest rates can vary drastically from one borrower to another based on credit score and other factors.

Rocket Loans offers fixed-rate personal loans, meaning that once you close your loan, your rate is locked in and won’t change while you’re paying back the loan amount.

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Personal Loan Vs. Credit Card: Debt Consolidation

Both personal loans and credit cards can be used to consolidate credit card debt, allowing you to get out of debt faster by saving money on interest.

Personal loans are best if you have more debt than you can put on a credit card, especially if you need more than a year to pay it off. You can take out a debt consolidation loan with more affordable fixed monthly payments and possibly a lower rate than you’re paying on a card.

It can make sense to use another credit card to pay off your balance if you qualify for a 0% APR offer, or balance transfer. For a balance transfer, let’s say you have $5,000 on a card with a 20% APR. You decide to open a credit card with a 0% APR for the first 12 months and transfer your $5,000 balance to this new card. This means you won’t have to pay interest on your balance for the next 12 months, instead of the 20% you would have paid with your original credit card.

Keep in mind that a balance transfer can subject you to fees that may make the transfer not worth it. You’ll also want to have a plan to pay your balance in its entirety before the introductory period ends, or you’ll be paying interest again.

How Personal Loans And Credit Cards Can Affect Your Credit Score

A personal loan and a credit card can both affect your credit score in positive and negative ways. When credit bureaus look at your score, they consider how well you balance all of your debt, especially revolving and installment debt. Having a diverse credit mix, perhaps including personal loans and credit cards, can help raise your credit score.

Of course, your credit score will also depend on how well you keep up with your monthly payments for both a personal loan and credit card. For example, credit card debt can raise your credit utilization ratio, lowering your score. Defaulting on, or failing to repay, a personal loan can also significantly lower your score and creditworthiness in the eyes of a lender.

Personal Loans Vs. Credit Cards: Pros And Cons

Personal loans and credit cards both have benefits and drawbacks, all of which you should consider before making a commitment.

Personal Loans



Personal loans often have lower interest rates than credit cards.

A low credit score can mean a higher interest rate for a borrower.

Most personal loans come with fixed monthly payments.

Borrowers must take time to reapply for an additional loan if they need more cash than the first loan gives them.

Lenders can generally offer fast funding, sometimes the same day as loan approval.

Secured personal loans, though rare, require collateral.

Credit Cards



Credit cards offer revolving credit and potential increases to your credit limit.

Credit cards typically have high interest rates.

Cardholders don’t have to repay their full balance every month.

Some cards require borrowers to pay annual fees.

Some cards offer cash back and other rewards.

Irresponsible credit card use can put you in credit card debt.

Alternatives To Personal Loans And Credit Cards

If neither a personal loan nor a credit card will work for you, at least they’re not your only options. Consider some of these alternatives:

  • Home equity loan: With a home equity loan, you borrow a lump sum of cash against the equity you’ve built into your home. The loan is secured by your home, though, and a default could result in foreclosure.
  • Home equity line of credit: Similar to a home equity loan, a home equity line of credit (HELOC) functions like a credit card in that you have a certain credit limit you can borrow against. Your home is also used to secure this type of loan.
  • Cash-out refinance: A cash-out refinance allows you to refinance your mortgage and convert your home’s equity into a lump sum of cash to use as you wish. A bonus to this method is that you can sometimes secure a lower mortgage interest rate in the process.

Final Thoughts: Choosing A Personal Loan Or Credit Card Depends On Your Situation

Whether you should go with a personal loan, credit card or another source of funding to meet your financial needs will depend on your situation and how you’re planning to use the money. Both a credit card and a personal loan have the potential to serve you well, but you’ll ultimately want to pick the option that makes the most sense for you.

If a personal loan sounds like the right choice, you can get started today with Rocket Loans and see the interest rate you prequalify for.

*Same-day funding is available for clients completing the loan process and signing the Promissory Note by 1:00 p.m. ET on a business day. Also note, the ACH credit will be submitted to your bank the same business day. This may result in same day funding, but results may vary, and your bank may have rules that limit our ability to credit your account. We are not responsible for delays that may occur due to an incorrect routing number, an incorrect account number or errors of your financial institution.

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Hanna Kielar

Hanna Kielar is a Section Editor for Rocket Auto℠, RocketHQ℠, and Rocket Loans® with a focus on personal finance, automotive, and personal loans. She has a B.A. in Professional Writing from Michigan State University.