Personal Loan vs. Credit Card: Which is the Better Option?
When you need quick funds, two popular options come to mind—Personal Loans and Credit Cards. While both provide access to money when required, choosing the right one depends on your financial needs and repayment capability. In this blog, we’ll compare personal loans vs. credit cards to help you decide which option is better for you.
1. Understanding the Basics
What is a Personal Loan?
A personal loan is a lump sum amount borrowed from a bank or NBFC (Non-Banking Financial Company). It comes with a fixed interest rate, a repayment tenure (usually 1 to 5 years), and fixed EMIs (Equated Monthly Installments).
Best for: Large expenses like medical emergencies, home renovation, wedding costs, or debt consolidation.
What is a Credit Card?
A credit card is a revolving credit facility where you can spend up to a pre-approved limit. You must pay at least the minimum due amount every month to avoid penalties. If you don’t pay the full bill, interest charges apply.
Best for: Small to medium-sized expenses, daily purchases, or emergency spending.
2. Key Differences Between Personal Loan & Credit Card
| Feature | Personal Loan | Credit Card |
|---|---|---|
| Loan Type | Lump sum amount | Revolving credit |
| Interest Rate | Lower (10%-24% p.a.) | Higher (24%-48% p.a.) |
| Repayment | Fixed EMIs (monthly) | Flexible payments (pay minimum due or full amount) |
| Loan Amount | ₹50,000 – ₹50 Lakhs (varies by lender) | Credit limit based on income & credit score |
| Tenure | 1 to 5 years | No fixed tenure |
| Approval Time | 24-48 hours | Instant (if you have an existing credit card) |
| Best For | Large planned expenses | Small ongoing expenses or emergencies |
3. When Should You Choose a Personal Loan?
A personal loan is the better choice in the following situations:
✔ You need a large sum of money (₹50,000 or more).
✔ You want a lower interest rate compared to credit cards.
✔ You prefer fixed EMIs to manage repayments easily.
✔ You’re consolidating high-interest debts (credit cards, payday loans, etc.).
✔ You need a long-term repayment plan (1-5 years).
Example Scenario:
Rahul needs ₹3,00,000 for his home renovation. A personal loan with a 12% interest rate and a 3-year tenure is more affordable than using a credit card with a 36% interest rate.
4. When Should You Choose a Credit Card?
A credit card is the better choice in these cases:
✔ You need funds for short-term expenses (shopping, travel, dining, etc.).
✔ You can pay off the bill in full each month (avoiding high interest).
✔ You want rewards like cashback, discounts, and travel points.
✔ You need instant access to money without loan approval delays.
✔ You want to build a credit history for future loans.
Example Scenario:
Priya books a last-minute flight worth ₹15,000 using her credit card. Since she can pay the full amount in 30 days, she avoids interest charges and earns reward points.
5. Credit Card Loan vs. Personal Loan: Which One is Cheaper?
If you pay the full credit card bill before the due date, you pay zero interest—making it the cheapest option. However, if you carry forward the balance, credit cards have the highest interest rates (24%-48% p.a.).
A personal loan is cheaper than a credit card loan (EMI conversion) since personal loan rates start at 10% p.a., whereas credit card loan rates are around 16%-24% p.a..
6. Pros & Cons of Personal Loans & Credit Cards
✔ Pros of Personal Loans
✅ Lower interest rates than credit cards.
✅ Fixed EMIs help with structured repayment.
✅ Suitable for big-ticket expenses.
✅ Higher loan amounts available.
❌ Cons of Personal Loans
🚫 Requires approval (can take 1-2 days).
🚫 Prepayment penalties may apply.
🚫 Fixed monthly payments (less flexibility).
✔ Pros of Credit Cards
✅ Instant access to credit.
✅ No interest if paid within the billing cycle.
✅ Earn rewards, cashback, and discounts.
✅ Useful for emergencies & online transactions.
❌ Cons of Credit Cards
🚫 High-interest rates if you don’t pay in full.
🚫 Minimum payment traps lead to debt accumulation.
🚫 Credit limits may not be enough for large expenses.
7. Final Verdict: Which is the Better Option?
| Situation | Best Option |
|---|---|
| Need a large amount (₹50,000+) | Personal Loan |
| Need instant credit | Credit Card |
| Want lower interest rates | Personal Loan |
| Can pay the full amount in 30 days | Credit Card |
| Need a structured repayment plan | Personal Loan |
| Want reward points, cashback & discounts | Credit Card |
| Want to build a credit history | Credit Card |
💡 Expert Tip:
- If you can repay within 30 days, use a credit card for free credit.
- If you need a large amount with lower interest, opt for a personal loan.
Final Thoughts
Both personal loans and credit cards have their pros and cons. The right choice depends on your financial needs, repayment ability, and spending habits. Choose wisely to avoid unnecessary interest costs and debt burden.
Need a personal loan? Compare the best offers and apply online today! 🚀