A personal loan vs a credit card: which is best?

Personal Finance

Team MONEYME|31 January 2023| 2-minute read

If you’re about to borrow some money for that long-awaited holiday, a new car or home renovation, you may be wondering if a personal loan or a credit card is the better option.

Well, there are pros and cons to both! Here’s how to figure out which one is the best choice for you.

☀️ How much do you need?

Are you heading to Mykonos for a week and want a spending buffer or are you remodelling the kitchen?  

The first thing to consider is how much you need to borrow. The average credit card has a limit of a few thousand dollars, whereas you may be able to get a personal loan worth tens of thousands.

💰 Do you need cash or a card?

A personal loan comes in the form of a lump sum of cold, hard cash into your bank account. You’re then free to spend it anyway you like. 

In contrast, you use a credit card as—you guessed it—a card! This means you can use it where cards are accepted which makes it a good option for everyday spending and paying for goods and services. 

You can often get cash advances (withdraw cash) on a credit card, but it will usually come at an extra fee.

💲 How fast do you plan to pay it back?

As a general rule, personal loans come with lower interest rates than credit cards. This is because you pay interest on the full loan amount regardless of if and how you spend it, and you usually repay the loan via fixed payments over a set period. If you want to repay a personal loan early, you might be hit with an early repayment fee (not with MONEYME though!).

In contrast, the way you repay a credit card depends on how much you spend and when. You pay interest on the card balance, which may fluctuate depending on your spending and repayments.

So if you want a bit more freedom, don’t know how much you will spend and plan to pay it back fairly quickly, a credit card may be the better option. 

To conclude… 

If you’re looking for a decent lump sum with a low interest rate that you’ll repay over a set period, then, chances are, a personal loan might be the better option for you.