Personal Loan vs. Credit Card: What’s the Difference?
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- Personal loans come in lump sums with fixed interest rates and are repaid in equal installments over time.
- Credit cards have a revolving line of credit that you can repeatedly draw from and repay.
- In general, personal loans are best for large, one-time expenses, while credit cards are better for daily expenses.
Personal loans vs. credit cards: Similarities and differences
Personal loans and credit card similarities
Personal loans and credit card differences
Key differences between personal loans and credit cards
| Personal loans | Credit cards | |
|---|---|---|
| Best for | Large purchases or debt consolidation. | Day-to-day expenses. |
| Repayment | Fixed payments for a set term. | Revolving payments with a minimum due each month. |
| Interest rate | Fixed interest rate for the life of the loan. | Variable interest rate on any unpaid balance. |
| Fees | Loans can have origination and late payment fees. | Credit cards can have annual fees, foreign transaction fees, balance transfer fees and late payment fees. |
| Rewards | Personal loans don’t have rewards. | Many credit cards allow you to earn cash back, rewards points or airline miles. |
When to use a personal loan
- Qualify for a low annual percentage rate, or APR. Low rates make monthly payments more affordable and reduce your principal faster.
- Want to consolidate large, high-interest debts. High borrowing amounts and fixed payments over a few years can help you pay down debts.
- Need to finance a large, one-time expense. Ideally, the expense will help your finances, like a home improvement project that increases your home’s value. Personal loans aren’t designed to be taken out frequently.
- Can make monthly payments over the loan term. As with credit cards, failure to repay results in a hit to your credit score.
- Need to borrow a large amount. Lenders may offer the most qualified borrowers loans up to $100,000.
Personal loans from our partners
on SoFi
8.99-35.49%
$5K- $100K
on Avant
9.95-35.99%
$2K- $35K
on Best Egg
6.99-35.99%
$2K- $50K
Personal loan pros and cons
Pros
Can have lower interest rates than credit cards.
Fixed monthly payments can help keep your budget on track.
Lenders that provide fast funding can get you a large sum of money quickly.
Cons
High rates for fair- and bad-credit borrowers (scores below the mid-600s).
Monthly payment amounts may be hard to adjust.
You get a fixed amount of money, not a credit line to draw from.
When to use a credit card
- Need to finance smaller expenses. Credit cards are good for regular spending you can repay quickly, especially if your card comes with rewards for regular purchases like groceries.
- Can pay off your balance in full each month. NerdWallet recommends repaying your balance in full each month so you never pay interest.
- Qualify for a 0% promotional offer. If you qualify for a temporary 0% APR offer, credit cards are a good choice for short-term financing.
Credit card pros and cons
Pros
Use it whenever you need it.
Interest-free purchases if you pay in full each month.
Good- and excellent-credit cardholders may have access to rewards or a 0% APR promotional period.
Cons
High APRs can make credit cards an expensive way to pay.
Some cards come with annual fees.
Not all credit cards are accepted everywhere, and some vendors charge a small processing fee.
Carrying a high balance can hurt your credit score.
How borrowing affects your credit score
Personal loans vs. credit cards for debt consolidation
When to choose a debt consolidation loan
When to choose a balance transfer credit card
Personal loans vs. credit cards for a major purchase
When to choose a personal loan for a major purchase
When to choose a credit card for a major purchase
Article sources
- 1. Federal Reserve Bank of St. Louis. Finance Rate on Personal Loans at Commercial Banks, 24 Month Loan. Accessed May 23, 2025.
- 2. Consumer Financial Protection Bureau. What Is a Debt Relief Program and How Do I Know if I Should Use One?. Accessed Jan 16, 2025.
- 3. Experian and Oliver Wyman. Financial Inclusion and Access to Credit. Accessed Jan 23, 2025.
- 4. Internal Revenue Service. Canceled debt – Is it taxable or not?. Accessed Apr 1, 2025.
- 5. National Credit Union Administration. Credit Union and Bank Rates 2024 Q4. Accessed May 23, 2025.
- 6. Angi.com. How Much Does It Cost to Make My Home Accessible?. Accessed Nov 12, 2024.
- 7. Consumer Financial Protection Bureau. Consumer Use of Buy Now, Pay Later and Other Unsecured Debt. Accessed Jan 27, 2025.
- 8. Internal Revenue Service. Retirement Topics - Plan Loans. Accessed Apr 8, 2025.
- 9. Internal Revenue Service. Retirement topics: Exceptions to tax on early distributions. Accessed Apr 8, 2025.
- 10. Administrative Office of the U.S. Courts. Bankruptcy Basics. Accessed Apr 8, 2025.
Methodology
How we chose the best personal loans
Our team of consumer lending experts follow an objective and robust methodology to rate lenders and pick the best.
35+
Lenders reviewed
We review over 35 lenders, including major banks, top credit unions, leading digital platforms, and high interest installment lenders operating across multiple states.
25+
Categories assessed
Each lender is evaluated across five weighted categories and 27 subcategories, covering affordability, eligibility, consumer experience, flexibility, and application process.
70+
Data points analyzed
Our team tracks and reassesses hundreds of data points annually, including APR ranges, fees, credit requirements, and borrower tools, ensuring up to date, accurate comparisons.
Star rating categories
We evaluate more categories than competitors and carefully weigh how each factor impacts your experience.
NerdWallet’s review process evaluates and rates personal loan products from more than 35 financial technology companies and financial institutions. We collect over 70 data points and cross-check company websites, earnings reports and other public documents to confirm product details. We may also go through a lender’s pre-qualification flow and follow up with company representatives. NerdWallet writers and editors conduct a full fact check and update annually, but also make updates throughout the year as necessary.
Our star ratings award points to lenders that offer consumer-friendly features, including: soft credit checks to pre-qualify, competitive interest rates and no fees, transparency of rates and terms, flexible payment options, fast funding times, accessible customer service, reporting of payments to credit bureaus and financial education. Our ratings award fewer points to lenders with practices that may make a loan difficult to repay on time, such as charging high annual percentage rates (above 36%), underwriting that does not adequately assess consumers’ ability to repay and lack of credit-building help. We also consider regulatory actions filed by agencies like the Consumer Financial Protection Bureau. We weigh these factors based on our assessment of which are the most important to consumers and how meaningfully they impact consumers’ experiences.
NerdWallet does not receive compensation for our star ratings. Read more about our ratings methodologies for personal loans and our editorial guidelines.
