How to choose between a personal loan or credit card

If possible, the wisest way to pay for life’s expenses are with cash, but if you happen to find yourself in a situation where you’re needing money that you don’t have on hand, you’ll need to look into the options available to you. When you need a little (or a lot) of extra cash that you don’t have readily available to you, it’s easy to take the first offer of loaned money that comes your way, but not doing your research beforehand could land you in a sticky financial situation. Often times, the two avenues people choose to get a cash infusion are credit cards and personal loans. Here are a few ways to determine whether to use a credit card or personal loan.


Understand the difference

A personal loan gives you one lump sum, which you pay back in equal monthly payments over a specified period of time. Personal loan payments will include both your principal amount borrowed as well as the interest. The payment amounts are usually non-negotiable, and once you’ve made the payment on your loan, you’re unable to “re-borrow” that money.

A credit card is an open line of credit in which you can spend as little or as much of your limit as you’d like each month. You are obligated to pay a certain minimum payment each month, if you have a balance, but are able to pay off up to the entire balance if you choose to. As long as you are in good standing with your credit card company, you are able to reuse your line of credit once it’s paid.  

Consider the term length

Depending on what type of expenses you’re needing to pay for, a credit card may make more sense than a personal loan and vice versa. In general, credit cards are ideal for short-term balances, especially ones that you may pay off monthly; while personal loans tend to give you the best deal for longer term loans.

Essentially, you could make charges to your credit card that you pay zero interest on if you pay it off in full prior to it accruing the interest. You can also avoid paying interest fees on a credit card by acquiring a 0% interest credit card. Usually, these offers only give a short period of time in which you’re guaranteed the 0% interest rate, so be sure to look carefully into the details.

If you’re not planning on paying the balance off in full each month and are looking to make payments on the balance each month instead, then a personal loan may be the best way to go. Personal loans tend to have lower interest rates than credit cards, making them the more sensible option for sums of money you aren’t going to pay off all at once.

Whether a credit card or personal loan works best for your situation can only be determined by research and careful consideration. Take your time in researching the different options available to you in order to make the best choice.