Personal loan on credit card
Personal Loan vs. Credit Card: Which Should I Get?
The best choice for you likely depends on your credit score, how much money you need and how much time you need to repay the debt. Here’s a look at personal loans vs. credit cards, and how to determine the best option.
Personal loans are a good option if you:
- Want to consolidate high-interest debts.
- Need to finance a large expense.
- Have good to excellent credit.
- Can make monthly payments over the loan term.
Interest rates on personal loans generally range from 6% to 36%, and borrowers with good or better credit may qualify for a rate at the low end of that range. Borrowing limits can also be high, up to $100,000 for the most qualified borrowers.
A personal loan is an installment loan, which means you get money in a lump sum and make fixed monthly payments over a specific period, usually two to five years. Many online lenders let you pre-qualify for a loan to see estimated rates, with no impact to your credit score.
The rate you receive on a personal loan largely depends on your credit score. Lenders also assess your credit history, income and debt-to-income ratio. Use the calculator below to see estimated rates and payments based on your credit score.
Credit cards are a good option if you:
- Need to finance smaller expenses.
- Can pay off your balance in full each month.
- Qualify for a 0% promotional offer.
Credit cards can be an expensive form of financing if you don’t pay off the balance each month or qualify for a card with a 0% interest promotion. Credit cards typically have double-digit interest rates, and carrying a high balance can negatively impact your credit score.
A credit card is a revolving form of credit that allows repeated access to funds. Instead of getting a lump sum of cash, your card has a credit limit you can charge up to. Minimum monthly repayment amounts are usually about 2% of your balance, though you can avoid interest charges by paying the full statement balance by the due date.
Personal loans vs. credit cards for debt consolidation
When to choose a personal loan: If you have a large amount of debt (more than $15,000) and need more time to pay it off, a debt consolidation loan with fixed payments may be a better approach, but only if you can get a lower rate on the loan than what you pay on your existing debt.
When to choose a balance transfer credit card: If you have a smaller amount of debt (less than $15,000) and good credit, a balance transfer card may be the best choice. It lets you consolidate high-interest debts to a card with a 0% introductory interest rate that can last up to 18 months.