Personal Loans Vs. Credit Cards: Which is better?


So you have your eyes set on that piece of equipment, that new piece of tech. Or maybe a nice purse, or a gorgeous jacket you just can’t seem to let go of. Sure, it’s expensive, but it’s on sale now, so it’s something approaching your budget. However, you can’t really afford it at the moment, unless you use something extra. This is where personal loans and credit cards come on.

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Namely, paying in cash is always the best option, but sometimes it just isn’t feasible. Life happens, you have the deal of the lifetime of the century in front of you, and you don’t know what to do with it. Saving for it is not an option, you don’t have the time, and your safety net should not be touched. A vacation, a nice car, or just fixing up your home during an emergency – it can add up. 

Now, most of the time people just grab their credit cards for convenience and get it over with. If they don’t have a credit card they should have good reasons to ask for money from friends or family unless that is not an option either. Personal loans have their own benefits, but are not as easy to get, and have their own pitfalls and conditions.

Of course, choosing the one that is appropriate for your situation, context, and environment is difficult. As with most things, it varies from person to person, and from place to place. Still, if you are interested in figuring out which one is better, read the article below to find out the key differences.

A primer on credit cards

A credit card can be defined as essentially a financial product that is issued by financial institutors, like banks, that allows you to take cash advances, make purchases, and transfer balances from one account to another. Now, what makes it useful in this instance is that when you get a credit card, you also get a line of credit (a maximum balance). As long as you make the minimum monthly payments and pay off your debts, you can indefinitely carry this kind of “debt”. 

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A bit about personal loans

Now, a personal loan is basically an unsecured loan that you can use for whatever purpose you want. Instead of getting a special loan for a house, your vacation, a vehicle… you can practically use this one for whatever you want. Anything from debt consolidation to a new laptop can be acquired in this manner. 

Now, here is how one works. You contact an institution, take out a loan, and then you receive a large lump sum. While you communicate with a bank, you set up your terms and conditions. There is a certain amount of money you have to pay back every month, for a certain agreed-upon number of months. These payments are fixed, with a fixed interest rate. Most of the time you get 24 to 60 months, but that can also vary. And of course, there are no penalties or issues if you decide to pay out your loan early.

Now, you can of course go and visit a bank office for this loan, but you can also apply online with companies like Loans sos. Just provide your personal and employment information on an online credit application. You will also need to provide some kind of proof as far as your income is concerned, whether you’re doing this online or in person. Prepare pay stubs, or check what kind of forms they insist you use. You will probably find out pretty soon, within a week, whether they have approved a loan for you or not.

You will then be presented with the form and a loan signing agreement. Now is your chance to review their stipulations and conditions. You are of course under no obligation to sign this contract. Rather, take the time to read it thoroughly, to see what interest rates they have on offer, and what are their terms. Upon signing the contract you will get the money right into your account. 

Finally, keep in mind that a normal and standard personal loan contract never requires any type of pre-payment option. This essentially means that you can pay out your loan in full at any moment, without paying for any extra money that isn’t included in interest rates.

Loan vs. credit card

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Credit cards are often called revolving debts. With a credit card, you have a credit limit that you can use as often as you can, as much as you want. However, once you reach a certain balance, you need to pay it off after a month (or at whatever fixed time you took with your bank). Now, if you don’t pay off this debt in time, you will be “carrying a balance”, meaning that interest will start to accumulate on your card, and your debt will gradually increase. However, you will still be able to use it.

Now, with a fixed loan, your debt is fixed, you know how much money you got, you can only spend that amount, and you have equal installments for a set period of time. Personal loans are thus a bit safer. If you get in financial trouble through bad choices, bad luck, or bad habits, you won’t really be able to dig yourself any deeper with this type of loan. Credit cards, however, carry the danger of keeping you in debt. Since you can always accumulate more credit every month, your bills and your debt will increase. Basically, the only way to accumulate extra debt through personal loans, barring interest, is to take out a new one. And if you got lucky and contacted a place that offers low personal loan rates, then you will

What they have in common is that they are both unsecured. So, a car loan is secured by a vehicle, and a home loan by your house or apartment that is being financed through a said loan. And if you fail at not paying your loan, the bank will simply take the car or the house away from you. This is the reason interest rates are so high for personal loans and credit cards.

Why loan instead of a credit card?

To put it simply, personal loans have two main benefits. One – you are not in danger of seriously overspending and burying yourself in debt. Two – they are better for larger purchases, and give you some extra time to repay your debt. Furthermore, the application process can be quite quick, if you search “instant loans Canada” you will be able to find lenders that have a quick turnaround time.

So, if you find it much easier to pay something over several months’ time, as well as wanting to get a large purchase – a personal loan is the better option. The size of the loan will vary depending on your needs, and your credit. 

Now, the core issue with personal loans is that you will most likely need to pay an origination fee. This is a onetime payment that is somewhere between one and five percent of the total loan amount. This can either be paid as a condition to actually get the loan, or it can be removed from said loan immediately. However, it’s important to point out that this varies from bank to bank, and that you might not need to pay one at all. We advise you to thoroughly compare what various banks have to offer. Perhaps they do have a high origination fee. However, they might at the same time have very low-interest rates, for a prolonged period of time. 

Why a credit card instead of a loan?

Credit cards are great if you want to consolidate small debts, and make small purchases. Anything between a couple of hundred and a couple of thousand dollars is fine for a credit card. Just note that these debts shouldn’t be carried out for more than a year. So, getting a 0 percent credit card means getting short, small loans that carry no interest if you pay off the debt in time. These are perfect for small purchases that you can regulate within a month. Small debts can also be repaid with the right card.

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Finding a good loan

Just like a credit card, you need to have a good credit score if you want to get a good loan. Try to build your credit as much as you can, work on it long and hard, and then try to get a good loan.  Then, shop around. Go online, compare loan amounts, and see what credit unions have to say. Remember to read the fine print, and thoroughly inspect the paperwork, and you will be good to go.

Now, as far as getting your credit better, there are several things you should do. First and above all – pay your bills on time. Namely, your bill payment performance is a very strong indicator of whether you will be able to pay future loan installments. This goes for utility bills, cell phone payments…

Next, don’t just ply for any credit account. Unnecessary credit lead to the creation of hard inquiries on your credit report. Applying for too many credit lines will lead to the creation of said inquiries, leading to the sinking of your credit score. 

Also, pay off all the small debts and balances you have. This means any line of revolving credit you might have, any credit card debts, and any type of debt you owe to people need to be paid in full. 

Finally, dispute your credit reports if there are any inaccuracies. Mistakes happen, bankers are only people, and there is no point in having your credit harmed by simple inaccuracies and issues through no fault of your own.

Finding a good card

In order to get a good credit card, you first need to check your credit score. The better your score, the better the perks and credit card you will get. Contact your bank, and see what your credit issuer says. Do your homework and figure out what your credit score is. You are most likely by law to receive a free credit score report from time to time, so see if you can get one as soon as possible.

Next, you need to figure out what type of card you want. For example, there are prepaid cards like the KOHO credit card that help you build your credit, cards that help you get the best interest rates, and cards that have additional perks and rewards.

Cards that help you rebuild credit are usually secured credit cards. They require a security deposit of a certain sum. This sum will either be returned to you when you start improving your credit, or when you have your account closed for legitimate reasons.

Then, you have cards that have very low or zero interest rates. These don’t give you a good amount of money, but they are perfect for people who like having this kind of credit as an emergency, as well as for people who do not have a strong, regular stream of income.

Finally, some cards give you options and rewards. Paying off your balance in full every month, never incurring interest, can give you nice perks. Finding these cards might not be easy, but they can definitely be fun to use, and very useful if you are a responsible person with a strong influx of money every month. The perks you can get can be manifested through some free airplane miles, some cash back, or even special rewards that a local bank may offer.


Getting a credit card or a personal loan gives you a great deal of flexibility when your purchasing power is concerned. You don’t have to completely rely on your paycheck, or on payday to get on this brand new deal, this fantastic new item or product, or service. Whether it’s a gaming laptop that you really want, or perhaps a cheap car that you need for work since your old one is completely dead, you can count on these types of credit to help you out. However, the core issue here is that they depend on your situation.

 If you want short-term loans and relatively cheap products, and you trust yourself and your purchasing decisions, then a credit card is for you. However, a personal loan gives you a bit more order, keeps you on a leash, and can help you make larger purchases.


Contributed by Lucas Parker

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