If you’re thinking about borrowing, you’re probably going to investigate the popular options, getting a personal loan or a credit card.
Deciding the right route depends on a few things, like how much money you need, how quickly you want to repay it and how steady you want your payments to be. Knowing the pros and cons of each can help you make the right choice with confidence.
In this article
A personal loan lets you borrow a set amount and repay it in fixed monthly instalments over a fixed term. Upfront, you’ll be given and agree the amount you want to borrow, interest rate and payment term. This means you know exactly what you're paying back and when your loan will end.
A personal loan can be a good choice if you have a big cost you need to fund, like a car, a wedding or a holiday, and want a clear plan to become debt free by a set date. Loans can also be a useful way to consolidate other debts into one, making repayments more manageable.
A credit card offers a flexible credit limit you can use for payments on most things and repay when needed. You must make at least the minimum payment each month. Interest applies if you carry a balance unless you are on a 0% or promotional rate.
A credit card can be a good option if you’re looking to borrow for small everyday purchases you can clear quickly and want short-term flexibility.
Here’s a quick comparison of the differences between loans and credit cards and how they work.
| Feature | Personal loan | Credit card |
|---|---|---|
| How it works | Borrow a lump sum and repay in fixed monthly instalments | Spend up to a set limit and repay monthly either in full or part payments |
| Typical use | One-off, larger costs (home projects, car repairs, your wedding) | Smaller or variable costs (everyday spending, bills, food, home, clothes) |
| Payments | Fixed and predictable | Flexible, varies with what you spend and repay |
| Interest | Usually lower than standard credit card rates. Rate fixed for the loan term | Standard rates can be higher. 0% offers may be available |
| Fees | Possible arrangement or early repayment fee | Possible annual fee, balance transfer or cash withdrawal fees |
| Finish line | Clear end date. You might also be able to repay early | No fixed end date |
Choosing a loan as your way to borrow might suit you when you want structure and certainty that fits into your budgeting. Some reasons a personal loan might suit you:
Choosing a credit card as your way to borrow may be the sensible choice if you need flexibility and plan to clear the balance quickly.
Some reasons a credit card might suit you:
When weighing up credit card versus loan options as a way of borrowing it’s important to look beyond the headline rate advertised. It’s good practice to check these costs and rules so you can gain a fair comparison to help you make the right decision.
Read our guides to what APR means and the difference between APR and interest rates
If you already have credit card balances you’re trying to clear, you might be considering a balance transfer credit card or a personal loan to consolidate what you owe. Find out how each works and what might suit you best:
Credit card balance transfer process
Debt consolidation loan balance transfer process
Whichever way you choose to borrow, you’ll want to figure out how much you’ll pay in total. So think about how quickly you plan to clear the debt.
If you expect to pay off what you owe in a shorter period of less than a year, a 0% credit card used carefully may be a cheaper option. If you need a longer period to clear the debt, a fixed loan can help you control costs, stay on track and work alongside your budget.
It’s important to know what applying for and using a loan or credit card will do to your credit score and credit health. Choosing either may help or harm your credit score depending on how you use it.
Things to consider:
You can check your eligibility for a credit card or for a loan without impacting your credit score.
Good habits make the biggest difference when managing a credit card and a loan. Following these tips will help:
Read our guide to dealing with credit card overspending and our help with money worries page
For shorter periods and smaller amounts, a credit card with a 0% purchase offer can be cheaper if you clear the balance on it in good time. For longer periods and larger sums, a fixed rate loan often keeps costs lower overall.
If you need more time to repay it back, a loan’s fixed term payments can help over a few months or years. If you have a bigger budget and can clear the balance quickly, a credit card is a good choice, especially if you find a 0% credit card purchase deal.
Yes, both loans and credit cards can have a positive impact on your credit history. To make sure this happens, remember to make payments on time, keep card balances low against your limit and avoid taking on more debt than you can manage so your payment history is clear.
Neither a loan nor a credit card is automatically better for your credit score. Both can positively affect it if you manage them responsibly. You can do this by making sure you’re making payments on time and keeping the amount you owe under control.
You need to look at your money coming in and ask yourself what you can afford to pay back. If you’re confident you can clear it within a few statements, a credit card gives flexibility. If your budget is tighter and need a longer period to pay it back, a small, fixed term loan can offer structure and time to pay it back at your own pace. It may suit you better to save a rainy day fund or an emergency fund for unexpected expenses, rather than borrowing to cover them.
Spread the cost of a purchase with a credit card. Variable APR range between 19.9% and 34.9%
Make your money work harder. Set up an easy access or fixed term savings account for your goals
Do your personal or business banking at your local Post Office branch. Pay in and withdrawal money
You may have just bought your first home and want to do it up, or you might be a seasoned homeowner looking to make a large dent in that never-ending list of improvements. Whatever your reason for wanting to take out a loan for home improvement, it can help you achieve your dreams sooner.
Wondering if you can apply for a mortgage if you already have other loans? Lenders consider many factors, like how a mortgage will fit into your overall finances.
One of the most exciting things about homeownership is being able to make changes and revamp your living space.
If you’re thinking about borrowing money with a personal loan, you’ll usually come across two main options: secured and unsecured.
Need to buy your first car or change one you already have? Wondering which ways to pay for it might work best for you?
Thinking about borrowing money with a personal loan or credit card? It’s important to know how much it will cost, but seeing different APR and interest rates may feel confusing.
Post Office is the credit broker and the lender is Lendable.