How Is Using A Personal Loan Better Than Using A Credit Card?

Should I use a credit card or take a personal loan?!

This is your inner voice when you require an extra fund to consolidate debt or pay off liabilities. 

Well, making the right decision is not that easy. It requires proper research to analyze the pros and cons of both. This article will help you analyze the pros and cons of both options. So, read carefully and decide whether to choose a credit card or personal loan. 

Personal Loan

Personal loan, as the name suggests, is taken to fulfill personal financial requirements. One can apply for a personal loan from Bank, Online Lender, or a Credit Union for a variety of reasons like home improvement, debt consolidation, paying off emergency expenses, etc. 

However, terms and money lending conditions differ depending on the money lending source and your credit report. Generally speaking, a person with a better credit report, CIBIL, gets a personal loan quickly compared to a person with a bad credit report. Also, the size of installments and the rate of interest vary according to your credit report. 

Well, a good CIBIL score is a necessity if you plan to apply for any loan or credit card. 

Moving further, if we talk about the tenure of a personal loan, it may last up to a couple of years, depending upon your size and number of installments. 

Note: You can secure your personal loan with collaterals like home, FD, etc. Also, failing to pay personal loan installments will harm your credit score, and you may be charged with a fine. 

Credit Card

A credit card is a word that is more familiar among the young generation to swipe and shop. This present commodity has gained a lot of value in recent times, which people mostly use to pay for items in person or online according to their convenience. But this is not enough to know about a credit card. You need to know more if you wish to compare it with a personal loan and choose the winner between the two. 

So, if you go by official definition, a credit card is a payment mode that allows borrowers to use credits to pay for their utilities. You can apply for credit from any bank or a credit card service provider company as you need. 

However, people aiming to credit cards in the future should know that there are two types of card – secured and unsecured credit cards. 

If you choose a secured credit card, you make a deposit (cash refundable) that can be converted into a credit line. On the other hand, if you choose an unsecured credit card, no such cash deposit is required. 

For sustaining a credit card, you require to pay monthly installments timely. If you miss any of the installments, you will incur a carry over to be added to the next EMI. 

Note: Failing any EMI will have potential risks on your CIBIL Score. 

Personal Loan vs Credit Card Based on a Few Financial Factors

  • Rate of Interest: Personal loan tends to have a lower rate of interest as compared to a credit card. However, the rate of interest may also vary according to your CIBIL. 
  • Daily Usage: Personal loan is a one-time shot. You cannot continuously borrow more money if required. But a credit card allows you to do it. 
  • Building Credit score: Both a personal loan and a credit card help in building a credit score. However, you have to be very punctual about paying EMIs timely and religiously. 
  • Fixed Rate of Interest: Unlike personal loans, credit cards do not have a fixed rate of interest. They may vary according to your late payments.
  • Hefty Installments: In a personal loan, the sum of the amount borrowed tends to be high. Therefore, its minimum monthly payments also tend to be high, unlike in credit cards. People may find it challenging to pay personal loan installments compared to monthly installments of a credit card. 
  • Late Pay Fee or Penalties: Both credit cards and personal loans charge you a dime for not paying timely. However, every source of lending has a different set of rules for such fines and penalties. Therefore, you must ask about the potential charges to stay informed.
  • Addiction: You cannot be addicted to borrowing money through personal loans. However, a credit card makes you greedy. A properly watched shopping regime is much required for having a credit card. Otherwise, you will be in massive debt.
  • Associated Risk: Borrowing personal loans are risk-free, but credit cards are not. Most of the credit card companies work on predatory culture.
  • Huge Lump Sum Amount: Personal loans allow you to borrow a lump sum amount for buying a car, a house, or invest in a business. However, with a credit card, you don’t get this facility. 


Seeing the differences, you may easily conclude why taking a personal loan is better than applying for a credit card. So, take the wise decision and stay stress-free.

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