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Personal Loan vs. Credit Card – Which Is Better for You?

A young woman reviews a bank statement and wonders if a personal loan vs. a credit card is better for her financial situation.

Personal loans and credit cards each allow you to borrow money for necessary expenses, but with significant differences in how you receive funds and pay them back. We look at how the pros and cons of a personal loan vs. credit card match your financial needs.

Personal Loan vs. Credit Card: Borrowing for Your Needs

Both personal loans and credit cards allow you to borrow money to find a wide range of personal expenses but in very different ways. A personal loan provides you with a single lump sum or installment that you pay off over a fixed period while a credit card provides you with a  source or “line” of revolving credit that you can borrow against and pay off as needed.


Personal Loans

Put simply, personal loans are good for paying for large one-off expenses that make a material difference to your life including home improvements, work equipment, professional development, or consolidating existing debt in a single place.


A personal loan from a credit union, bank, or online lender puts a significant amount of money in your hands and offers a predictable way to pay it back. You get:

  • A large lump sum to spend as you wish
  • For most loans, a fixed annual percentage rate (APR) 
  • A fixed payment each month and a fixed term to your loan
  • A far cheaper APR than a credit card or other forms of unsecured lending
  • No collateral on most personal loans.


Requirements for personal loans are also relatively easy compared with many other types of credit. Lenders like Atlantic Financial Federal Credit Union offer easy and quick application processes. In most cases, you simply need to fill out an application and be able to show:

  • Proof of identity, such as a driver’s license
  • Proof of a stable and steady income, such as pay slips, a W-2, or bank statements
  • A reasonably good credit score
  • An acceptable debt-to-income ratio

The lump sum payout you receive when you take a personal loan is not considered income unless the loan is forgiven. The interest your loan accumulates and which you repay is not normally considered deductible unless the loan was used for certain business or higher education expenses. 


On the downside, taking out and paying back a loan is a serious commitment that requires organization, commitment, and discipline. In addition, it involves:

  • Fees, including origination, processing, service fees, and sometimes loan insurance
  • Potential loss of your property, if you fail to pay back a secured loan
  • Few perks, benefits, or rewards for spending or loyalty, compared to credit cards


Credit Cards

Credit cards work best when they are used consistently to pay off smaller monthly or recurring expenses that you can pay off quickly. If money is tight, a credit card can provide “bridging finance” to ensure you can meet all your expenses between paychecks or irregular income.


Used right, a credit card provides you with just the money you need to borrow, and only charges on the funds you use. In addition, you can choose if you want to make just a minimum payment each month or pay off the full amount you owe. In addition:

  • Many cards come with an interest-free grace period on a balance transfer
  • Most cards are entirely unsecured by cash or collateral
  • Cards as faster and easier to apply for than loans
  • Many cards offer cash back, bonuses, or rewards for spending or loyalty
  • If you pay off your full balance each month, you will enjoy free credit
  • You can sometimes negotiate higher credit limits and better interest rates over time


That said, the availability and convenience of credit cards make it easy to run-up large balances that can be hard to pay back. In addition:

  • APRs are far higher than most other forms of borrowing
  • Some cards charge maintenance and service fees
  • Your balance can increase rapidly if you only make minimum payments
  • You will stay in debt indefinitely if you spend more than you pay off

Debt Consolidation

Many people take out personal loans or apply for a new credit card in order to consolidate debt. In many cases moving high-interest card balances and other debt into a single low-interest personal loan means predictable payments and a set pay-off date.

At the same time, moving existing balances to a card with a slightly lower APR and 0% introductory financing can help you get some valuable breathing room to get ahead on payments. Knowing which option is best for you depends on several personal factors, including

  • The extent and nature of your debt
  • Whether you are ready to stop using credit cards
  • Whether you can qualify for a personal loan


A personal loan makes a lot of sense if you want to take control of your credit card debt before it becomes a major problem, and are willing to make sacrifices to achieve this. On the other hand, consolidating debt on a single card can be a practical and less dramatic way to get excessive spending under control.

The Cash You Need to Make More Things Happen

Whether you’re looking for extra cash to help you cover unanticipated costs or to reach the next stage in your financial life, a personal loan offers an affordable, predictable way to do it.

At Atlantic Financial Federal Credit Union we offer personal loans tailored to your needs with low rates, flexible terms, and no collateral requirements. And we make it even easier to access the cash you need with no application fees on our personal loans.

Click below to learn more about typical requirements for a personal loan and to find out how AFFCU can help you navigate the application process.

Requirements for a Personal Loan