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Personal Loans vs Credit Cards: Which is Right for You?

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Personal Loans vs Credit Cards

If you need money fast, two of the quickest ways to get it is to use a credit card or get a personal loan. So which is the better option? We’ll guide you through the answer based on your situation and history.

All About Personal Loans

If you need a relatively large (or small) amount of money quickly, one option to consider is a personal loan. You can get a personal loan through various sources, most of which are processed through your local bank. Lenders will pull your credit history to understand how reputable of a borrower you are to determine your interest rate.

Personal Loan Interest Rates

Your interest rate on a personal loan varies based on your credit score. Typically the rate will be between 7 and 15% with better scores leaning towards the 7% mark. Interest rates for personal loans will vary based on the lender. If you have a credit score above 800, you might even be able to find an interest rate as low as 4%. It’s best to research many different lenders before you apply in order to find those who offer the best rates.

Personal Loan Amounts

The amount you are approved for will depend on your income history and credit score. Those who have a significant income and great credit score might be able to borrow tremendous amounts of cash. Those with a lower credit score might be able to borrow $5,000 to $15,000 but it is ultimately up to the bank and how much they are willing to risk. Each bank calculates this amount differently so it’s a good idea to look up reviews or talk to the bank before applying.

Personal Loan Fees

Make a late payment? That’s going to cost you! Different banks have different fees for missed payments so be sure to understand what your potential fees could cost you before applying.

How long does it take to get a personal loan?

Compared to credit cards, getting approved for a personal loan will typically take more than 15 minutes. The approval process can take a few days and then a few more days to receive the funds. You should expect to have your funds within 7 business days of applying if the amount is reasonable. If you are requesting a large amount of cash, you can assume it will take longer.

All About Credit Cards

Credit cards are notorious for high-interest rates and late fees. But for some, it might be a good option if they need money quick. Credit cards are known as a revolving source of credit meaning that there is no “end” date to when your amount is due.

Credit Card Interest Rates

Credit cards typically have higher interest rates than personal loans. They can range anywhere from 15% to over 30% depending on your credit score. It’s a good idea to shop around before applying for a card to see what the average interest rate is.

Credit Card Limits

Credit cards offer limits that are typically based on your income. If you need a large amount of funds ($50,000+) a personal loan is probably a better option for you. Credit cards are known as a revolving credit line, meaning that the line of credit will exist until the account is closed. A personal loan is a short term option that has an explicit due date.

Credit Card Fees

Credit cards are notorious for fees. But if managed correctly, you can easily avoid any and all fees. Some of the most common credit card fees are:

  • Late payment fee
  • Foreign transaction fee
  • Cash advance fees
  • Annual fees
  • Balance transfer fee
  • Returned payment fee

Late payment fees can cost you anywhere from $25 to $50, plus the interest accrued.

Foreign transaction fees can cost you between 2-3% depending on the card. Some cards will waive foreign transaction fees altogether.

Cash advance fees will typically cost between 2-3% of the amount you request. Most cards will have a cash advance cap that is well below your spending limit.

Annual fees vary widely depending on the card. Many cards come with no annual fee but some will cost upwards of $500 annually.

Balance transfer fees can range anywhere from 2-5% depending on your card. It might be a wise idea to transfer the balance of a high-interest card to a new card, especially if you can score a 0% intro APR.

Returned payment fees are similar to late payment fees. They depend on the card issuer but you can expect to pay at least $30 per returned payment.

How long does it take to get approved for a credit card?

One of the major perks of a credit card is the quick access to money. Many issuers can approve your application within seconds of applying. Some will even give you access to the card information immediately after, allowing you to make online purchases instantly. You can expect your card to be mailed to you within 10 business days.

Should I get a loan or credit card?

Now that you know the basics of each, which is right for you? There are a few questions that can help you make the best decision.

Do you need long term access to funds?

Personal loans have a maturity date in which all of the funds must be paid. Credit cards, on the other hand, will allow you to borrow cash for as long as the account remains open. If you need cash for more than a few years, a credit card might be the better option for you.

Do you need the funds for an extended period of time?

If you need to borrow cash and cannot repay it within 30 days, a personal loan might be a better option. A personal loan will require you to make partial payments each month that is well below the total balance. You will pay significantly less in interest payments through a personal loan because of this. If you do not repay the amount you borrow after 30 days, your credit card will start to accrue interest.

How do you plan to use your money?

If you’re planning to use your money on everyday expenses, a credit card might be a better option. You can avoid interest by making frequent payments and keeping your balances low. In addition, you’ll also earn rewards that can be used as a statement credit or turned into cash.

How much money do you need?

If you need a large amount of cash, a personal loan is probably the way to go. You can expect to pay a higher interest rate depending on how much you borrow, but you will have access to more cash. It is much more difficult to get approved for more than $50,000 via credit cards, making a personal loan a better option.


No matter which option you chose, you should always be careful when borrowing money. It’s wise to shop around before applying to any card or loan processor to get an idea of interest rates, credit or borrowing limits, and any potential fees that might be applicable. You can avoid paying credit card interest by making payments on time and in full. When choosing to borrow money, you should have a plan in place to ensure you can repay it. Debt can be scary and should only be used in desperate situations.

Looking for a credit card? Read our credit card reviews here!

Forrest is a personal finance, entrepreneurship, and investing enthusiast dedicated to helping others obtain life long wealth. He owns several different blogs and is also passionate about health and fitness.


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