Personal Loans vs. Credit Cards

Personal loans and credit cards are two popular financial products that give you easy access to funds. Credit cards provide access to a revolving line of credit, and personal loans offer an immediate lump sum payout. But these products differ in other crucial ways, including their payout and repayment methods.

Let’s examine the differences and similarities between personal loans and credit cards. That way, you can decide which product best fits your financial needs.

Similarities Between Personal Loans and Credit Cards

While personal loans and credit cards are different financial products, they do share some similarities:


Since credit cards and personal loans are both types of unsecured debt, card companies and personal lenders closely examine your finances before approving applications. Both may require borrowers to meet a specific standard of creditworthiness or income.


You can use credit cards and personal loans to pay for most expenses, such as debt consolidation, bill payments and travel expenses.

Effects on Creditworthiness

When you apply for a credit card or a personal loan, your lender will perform a hard credit inquiry. This inquiry can negatively affect your creditworthiness.

On the other hand, when you make loan or credit card debt payments consistently and on time, you may see your credit improve as you establish a payment history.

Differences Between Personal Loans and Credit Cards

You already know that credit cards provide revolving credit while personal loans give you access to a lump-sum payout. Besides this primary factor, these forms of credit differ in three significant ways:


With credit cards, your repayment depends on your usage. You should pay your statement balance in full by the due date each month to avoid interest. If you are not able to do this, you should pay at least the minimum payment by the due date each month to avoid late fees and higher penalty interest rates until you can pay off the entire balance.

Meanwhile, personal loans offer a fixed repayment schedule through monthly installments. You know beforehand how much your monthly payment will be and how long your repayment term will last.


When a lender approves your personal loan application, they deposit the payout directly into your account or send you a check. With a credit card, you use the card to access your revolving credit and make purchases whenever necessary.

You can also use your card in an ATM to secure a cash advance, but this should generally be avoided unless perhaps you need cash quickly in an emergency and do not have a better alternative to obtain it, since cash advances usually charge separate fees and higher interest rates and have no grace period for interest charges.

Fees and Interest

Both credit cards and personal loans can charge interest on the amount borrowed. Personal loan interest rates may be lower than credit card APRs, but you can typically avoid credit card interest on purchases by paying off your statement balance in full by the due date each month.

For personal loans, some lenders may charge early payment penalties or origination fees, and you may have to pay late fees if you don’t make your monthly payment on time.

Credit cards may also charge annual fees, late payment fees, returned payment fees, foreign transaction fees, over-limit fees, balance transfer fees, and cash advance fees, depending on how you use your credit card.

When Should I Consider a Personal Loan?

A personal loan could be ideal for when you need to make larger one-time purchases, such as a home repair or other major expense. It may also make high-interest debt consolidation easier if you can secure a loan at a lower interest rate than the average interest rate of your current debts.

Also, since personal loan repayments are pre-planned and monthly payments never change, they’re a good option for anyone seeking structure and predictability in loan repayments.

When Should I Consider a Credit Card?           

Credit cards can simplify everyday expenses like groceries and gas. You can use your credit card for larger purchases too, but if you do not pay your statement balance by the due date each month you could incur a large amount of interest on these expenses.

Certain credit cards may also offer rewards such as miles, points or cash back for making purchases on the card.

Choosing the Right Product for Your Situation

Consider why you need your funds. Typically, credit cards are best for small, everyday purchases that you are able to pay off quickly, while personal loans are ideal for bigger expenses.

If your goal is to consolidate debt, closely examine the fees associated with both options. With a balance transfer credit card, consider if the card has a 0% intro APR period on balance transfers. Ask yourself if it is a reasonable timeline for repayment. If you’re leaning toward a loan, calculate the total interest you’ll pay over the loan period and see if the terms are negotiable.

Disclaimer: Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.

Additional Resources

  • Start your personal loan application now!

  • Learn how FICO® Scores are determined, why they matter and more.

  • Review financial terms & definitions to help you better understand credit & finances.