personal loan vs credit card

Personal Loan vs Credit Card: Which Is Better to Use?

The average Canadian household has a net savings of just under $10,000. But what if you’re not an average Canadian household? Then you probably can’t afford an emergency or major life purchase on your own. The good news is, there are several avenues you can use to obtain financial help. For example, some people use their credit cards, while others take out personal loans. When it comes to a personal loan vs a credit card, which one should you pick?

Read on to see what you need to consider to make the right choice.

Personal Loan

A personal loan gives you a one-time lump sum of money upon approval. It’s a type of installment credit, and you’ll then pay it back with fixed payments, and with that comes a fixed term. Usually, you’ll repay your loan within five years, although longer periods are common too.

You can use the borrowed money for anything you want. So whether you spend it on a new TV or your electricity bill, the lender won’t care.

There are several types of personal loans, but the main ones are secured or unsecured. Secured personal loans are backed by collateral from the borrower, while unsecured loans don’t require this.

Credit Card

You might already be familiar with credit cards; a study done in 2019 found that 93% of Canadian adults have a credit card. But it’s not a bad idea to go over what credit cards entail.

These pieces of plastic give you revolving credit, meaning that as long as you pay back the money you’ve spent, you can keep repeating the cycle. The only ceiling is the credit limit, which card issuers often raise if you’ve been good with your payments.

A bonus of credit cards is that many come with rewards programs. You can earn points, miles, or cash back when you make everyday purchases. You can also use your credit cards for whatever you wish.

Like with personal loans, there are several types of credit cards available. The main ones include student, cash-back, travel rewards, and business credit cards.

Personal Loan vs Credit Card

Now you know the basics of each type of financial assistance. While you can buy now and pay later with both, there are some key differences you should be aware of.

Amount Borrowed

Typically, you can borrow a much higher amount with a personal loan than with credit cards. However, there are some that have lower limits, such as a fast loan with no credit check.

Otherwise, if you’re planning on a big-ticket purchase, then you’re probably better off with a personal loan. You’ll usually have more money to work with than with credit cards.

Interest Rates

If you’re looking for the lowest interest rates possible, then you’ll want to opt for personal loans.

In most cases, the interest rates with personal loans are lower, especially if you have a good credit score. There are also lower interest rates with secured personal loans since the lender doesn’t take on as much risk when they have collateral.


Both personal loans and credit cards will have fees attached to them. Personal loans have origination (application), service, and penalty fees.

On the other hand, credit cards will have annual, cash advance, balance transfer, foreign transaction, and late payment fees. Do note that not all credit cards will have every single fee; it’ll depend on the lender.


Personal loans can have either fixed or variable rate repayments, which are paid monthly. Every payment you make will have interest attached. You can face penalty fees if you try to pay off your loan early, which may be a strange concept.

With credit cards, you’ll receive a statement every month that shows all your purchases, which means the payments will be variable. If you can pay off the entire balance, then you won’t pay any interest. Otherwise, you can make the minimum payment required (or a little more), and you won’t be penalized; you’ll just accrue interest on the remaining balance.

What’s great is regardless of which you choose, both will help build your credit score if you make your payments on time.

Rewards Programs

Unfortunately, personal loans don’t come with rewards programs. So if you’re looking to get financial help while getting something in return, credit cards can offer you that. Their rewards programs can stretch your dollar further with purchases you’d be making anyway.


As you’re making repayments for a personal loan, you’re working towards a goal of a $0 balance. Once you hit that, then you’re done with your loan. If you need more money, then you’ll have to apply for another loan.

With a credit card, however, as long as you don’t close the line of credit, you can keep “borrowing” money up to your limit. You just have to pay off your balance, and it’ll “refresh”.

Get the Financial Help You Need

In the debate of personal loan vs credit card, there’s no right and wrong answer. However, in many cases, a personal loan is the better option. This is because you can borrow bigger sums and benefit from lower interest rates.

It certainly doesn’t hurt to get both though, as you can enjoy the best of both worlds. So if you already have credit cards and would like another source of financial help, then applying for a personal loan can be a good move.

If you’ve determined that a personal loan is what you need, then apply for a fast loan now.


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