Should You Take Out A Personal Loan or Use A Credit Card?

By Ernest Hamilton

Nov 23, 2020 04:12 PM EST

Should You Take Out A Personal Loan or Use A Credit Card? (Should You Take Out A Personal Loan or Use A Credit Card? ) (Credit: Getty Image)

Everyone needs a financial cushion from time to time, whether it's to fund unplanned travel, a sudden home repair, or upcoming expenses. But, while some have a nest egg to draw out during financial emergencies, others don't have extra money to cover such costs. 

The good news is there are borrowing options that anyone can resort to whenever unexpected expenses occur. Personal loans and credit cards, however, are the two choices that are likely to come to mind for most people. 

Although both of these will provide the funds you need, one option may be better than the other depending on your situation. To help you decide whether you should take out a personal loan or use a credit card, here are some essential things you need to know about them. 

Personal Loans

When you take out a personal loan, you will receive a fixed amount of money that you have to pay back in equal installments over a predetermined period, usually between two and ten years. Since a personal loan is a fixed debt, you won't be able to spend more than the amount you've been approved for. 

Personal loans can be unsecured or secured. You are not required to provide any collateral assets if you take out an unsecured personal loan. On the other hand, a secured personal loan needs collateral to back up your loan, and the lender has the right to repossess it in the event of a default. 

Credit Cards

When you use credit cards, you have access to a line of credit that you can draw on up to a certain maximum limit. It means that you don't receive the amount in full, but you can take funds from the account at your discretion. You will then have to make at least the minimum payment each month by the due date on the amount of funds that you used. 

Credit cards are a form of revolving credit. Thus, you can borrow money up to your credit limit, and then you can borrow it again as long as you repay some or all of the debt. You won't be charged any interest on the money you borrowed, just as long as you pay your balance in full every month. 

Which Option Works Better? 

When an immediate financial need comes, it's typical for anyone to simply go for any of these two options, but doing so may lead to further financial problems. The amount of money you need and your capacity to pay it back are critical factors in deciding which one you should use. 

So, to help you come up with a more informed decision, you might want to take a look at the following considerations. 


If you want flexible borrowing, using a credit card may work better for you. Credit cards allow you to borrow only what you need, since they don't require you to commit to taking a lump sum. 

Unlike a personal loan where you take out a fixed amount in advance, you can continue to spend your credit card up to your available balance. 

However, you would have to be more careful not to spend more than you planned or afford to pay. 

Amount of Expense or Purchase

Credit cards are ideal for smaller expenses, or even regular purchases, which you can repay quickly. Note that neglecting to pay them in full can lead to huge interest charges that may pile up over time. Thus, you must pay your balance off completely. 

On the other hand, personal loans are better for larger purchases that will take you longer than a year to repay. It's also more suitable if you need to borrow a specific amount of money, and you don't want to be tempted to spend more than this with a flexible credit card. 

Interest Rates

Personal loans usually come with lower interest rates than credit cards. If you fail to pay off the balance of your credit card each month, you'd be surprised at how expensive their interest charges can be. That's why credit cards are much better for purchases, which you can quickly pay off. 

If you need more time to pay down debts, personal loans would be more appropriate. Besides a cheaper interest, the rates of personal loans are also fixed, which means you'd be able to budget for your repayment. 

Additional Considerations

Another important consideration is whether or not you'll qualify for any of the two options. Whether you take out a personal loan or get a credit card, lenders may check your creditworthiness and finances. Make sure that you have a good credit score and have a decent record of paying back borrowed money. 

But before you commit to these two options, try to shop around for different banks or lenders, so that you will be able to find the one that will work best for your needs and resources.

Aside from traditional banks, it's good to know that you have several options, like CreditNinja, which you can access any time. CreditNinja is an online lending company that offers different financing options, such as personal loans. 


When you're torn between a personal loan and a credit card, always choose the one that you think is more manageable for you. Both options have their own benefits and drawbacks. In the end, it's how you use them that will make the most significant impact on your finances. 

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