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Personal Loans vs. Credit Cards

By: Melissa Thomas, SVP Operations and Payments

Posted on 1/23/2023 12:52:14 PM

Couple shakes hands with a financial representative after signing off on their personal loan

If you’re working to build a strong financial foundation and you want to make wise decisions when it comes to borrowing money, understanding the differences between personal loans and credit cards is a must. Personal loans and credit cards are two of the most common methods for financing purchases, but, depending on your situation, one option may be better than the other. Whether you need quick cash or an easy way to pay down existing balances without overspending, in this blog post we’ll explore what each type of borrowing has to offer and give you all the information needed to decide which one best fits your needs and goals.

What are personal loans?

Personal loans are a convenient way to help manage your finances and give you the ability to borrow funds relatively quickly. Unlike other loan products, personal loans offer fixed repayments with a fixed interest rate over a set amount of time with predictable payment amounts. This means that you can budget your monthly commitments and have clarity on when the loan will be fully repaid.

Moreover, the interest rates on personal loans are typically lower than credit cards, and they don’t fluctuate once you’re approved. However, it is important to note that sometimes collateral is required to secure the loan.

Personal loans can be used for many different purposes, such as consolidating high-interest debt or funding home improvement projects.

What are credit cards?

Credit cards offer access to a revolving line of credit with varying interest rates, depending on your credit score. Once approved, you can borrow funds up to a certain limit and use the card to make purchases or withdraw cash. This means you don’t have to pay back the full amount right away; however, it’s important to remember that any outstanding balance will incur interest charges unless paid off in time.

You can use a credit card for everyday shopping or larger expenses such as vacations and home improvements. The biggest advantage is that this allows you more time to pay off what you buy, making credit cards ideal for budgeting and controlling your spending. Plus, having access to a large amount of credit can come in handy during emergencies when you need the money immediately.

The biggest advantage to credit cards is the various rewards programs available. They provide incentives such as cash back or points for everyday purchases, giving the borrower an enormous perk if used responsibly.

At CFCU, our Visa Signature Cash Back card offers unlimited 1.5% cash back on all purchases. Moreover, it also comes with exclusive travel benefits, 24/7 global assistance, and a $150 cash bonus after spending $1000 in the first 90 days. Our CURewards Program offers members 1 point for every $1 you spend on qualifying purchases. Earned rewards can be redeemed for a variety of perks, including gift cards, travel, event tickets, cash back, and more.

In addition, we charge little to no fees on our credit cards and offer low introductory rates on purchases and balance transfers.

Key differences between a personal loan and a credit card

While personal loans and credit cards are both useful loan products, there are important distinctions between them to consider before choosing which to utilize. A personal loan is ideal for larger purchases such as home improvement projects or debt consolidation, with the loan amount typically set in advance and the interest rate fixed over the life of the loan. Credit cards, on the other hand, provide more flexibility when making purchases and come with higher interest rates than personal loans.

Borrowers only receive access to a specified amount with a credit card, meaning they can borrow funds at their discretion up to the max limit, only paying interest on the funds they use. Conversely, a personal loan only provides you the set amount upfront; you don’t have continual access to funds.

When considering added benefits, it’s good to note the various incentives credit cards offer such as cash back or low-rate introductory offers, as well as balance transfers. Credit card payments also vary each month depending on how much is on the card, which could be a pro or a con when compared to the monthly payment of a personal loan.

Additionally, credit cards are typically easier and faster to acquire whereas personal loans often require more paperwork and a longer application process.

Remember to weigh the pros and cons of each when deciding on which loan product will be best for you. This could potentially save you money in the long run.

The pros and cons of each type of debt

Personal Loans



  • Fixed rates and set payment over a specified period of time
  • Ideal for large purchases and consolidating debt
  • Typically have lower interest rates than credit cards
  • Can improve your credit score
  • Might have service fee and other fees
  • Borrowers with lower credit scores could face higher APRs
  • Personal loans secured by collateral carry the risk of the asset being repossessed if the borrower falls behind on payments.
  • Can damage your credit score if payments are late or not made

Credit Cards



  • Ongoing revolving credit balance that only charges the borrower interest on funds used
  • Great for everyday purchases or larger expenses
  • May offer rewards programs, low-rate introductory offers, and balance transfers
  • Borrowers can qualify for credit limit increases with on-time payments
  • Can be a great way to improve your credit score
  • Higher interest rates than personal loans
  • Missed/late payments may result in hefty fees and an increased APR
  • Some cards charge an overlimit fee for surpassing credit limit
  • Accrued interest and miscellaneous fees can start to add up
  • Can negatively impact credit score if payments are late or not made, or if you have a high balance in relation to your credit limit (best to keep credit card utilization at 30% or less)

A woman holds her credit card as she types on a laptop.

How do I know which option is best for me?

Deciding between a personal loan or credit card comes down to your individual situation. Think about the funds you need and if you can make regular payments every month.

If you have a large expense and are able to make regular payments, a personal loan may be the better option. Personal loans provide a lump sum of money with fixed interest rates and fixed payment periods.

On the other hand, if you need shorter-term access to credit with more flexibility, then a credit card could be the right choice for you. Credit cards do not typically require collateral, and they offer an easy way to make everyday purchases while potentially earning cash back or rewards. However, remember that credit card rates can be variable, and it can take longer to pay off any outstanding balance.

When it comes to debt consolidation, doing research and crunching the numbers will help you decide which option is right for you. You can take the steps to get preapproved for both a personal loan and credit card, see how much you get approved to borrow, the associated interest rates and other fees, and use this information to inform your decision.

Ultimately, understanding your financial goals and needs and doing your research will help you decide which product is best suited for your situation.

Tips for managing your debt responsibly

When it comes to managing debt responsibly, there are a few tips to keep in mind. When you're looking at different types of debt, make sure to pay attention to the interest rates and fees that come with them. Knowing your spending limits and creating a budget helps you stay within it. Make a plan for repayment and prioritize paying off high-interest debt first.

Setting up automatic payments for bills is helpful to ensure on-time payments, as well as checking your credit report regularly so you can identify any errors or suspicious activity that could affect your score. If you are having trouble making payments, contact your lender right away to talk about payment options and avoid potential late fees or penalty charges.

Limiting the amount of new debt you take on can help you manage your existing debt and prevent it from ballooning. You should prioritize building an emergency fund to help cover unexpected expenses so you don’t have to take on any unnecessary debt.

When in doubt, consulting with a financial advisor can help you review progress and provide accountability when staying on track with managing your debt.

For more information, check out CFCU’s Budget and Finance Management Tool for tips and tools to help you take control of your financial health.

The Bottom Line

When it comes to borrowing money, it’s important to understand the different loan products available and how they would fit into your individual financial situation. Taking the time to research and do the math on interest rates and fees associated with products such as personal loans or credit cards can help you decide which one is right for you. Additionally, managing your debt responsibly by setting up automatic payments, checking your credit report regularly, and limiting new debt taken on can help ensure that you make sound decisions when it comes to borrowing funds. By following these steps, you will be in a better position to make the best decisions for your financial future.

If you have any questions regarding our loan options at Community First Credit Union, give our Member Services Representatives a call at 904.354.8537. We’re always on hand to discuss your financial situation and provide helpful guidance on how to achieve your goals.

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