Personal loan or credit card loan: Which one is better?

Maybe you need cash for some car repairs, your wedding, or a big-ticket item that you need to replace.

If you don’t have the savings handy, you’ll need a personal loan or credit card to help get you through. But both options come with different conditions, so you need to decide which one is better for your situation.

So, what are they in the first place?

What is a credit card loan, and how does it work?

A credit card is a line of credit (ongoing credit), up to a certain limit, that’s provided by a bank. Anything that you spend on the card must be paid back to the bank by a certain date or you’ll be charged .

As an example, if you spend $100 on the card and you have a 20% interest rate which is charged monthly, you can be up for $120 if you don’t pay off the $100 before the month is up.

The total cost of the loan will look different depending on whether you make the minimum repayment every month or higher repayments.

For example, if you owed $1,000 on a credit card with an 18% annual interest rate, with minimum repayments ($21 first month decreasing) you’d pay $1,861 over nearly eight years or $1,180 over two years with a higher repayment ($49 per month).

What is a personal loan?

A personal loan is an amount of money provided by a lender in a lump sum. Interest is charged on the amount that you borrow, and the repayments are made in instalments over an agreed amount of time.

If you took out a $1,000 personal loan with 10% interest and a $150 establishment fee to be repaid over two years, it would cost you $1,257 in total ($52 per month).

If you want to know more about personal loans, we have created resources to guide you through all types of personal loans in Australia.

Comparing a credit card to a personal loan

These two types of credit come with pros and cons, like borrowing power, convenience, interest, and fees.

How much you can borrow

The amount you borrow for a personal loan is set. If you need the money in one go, like for a specific purpose, then a personal loan works well. A personal loan has set repayments, generally a lower interest rate, and an agreed term.

Based on our own customers, the most popular reasons for loans are car servicing, household goods, medical or dental expenses, insurance, house renovations and rental bonds.

Otherwise, if you need the money as you go or in bits and pieces, having a credit card allows you to have more flexibility – just make sure you stay on top of those monthly repayments as it can quickly add up.

How convenient is it to use one or the other?

Did you know that there are more than 13 million* credit cards in circulation in Australia?

It’s easy to apply for one and they’re accepted where you can pay with a card, so they’re convenient and flexible for when you need that extra cash. For some, using a credit card and managing the debt along with it is part of their everyday money habits.

While it’s not instantaneous, it is getting increasingly easier to apply for a personal loan in person or online. Depending on who you’re going with and at what time of the day you apply, the money can be in your account quickly.


When it comes to credit cards, while there can be introductory 0% interest rates, grace periods, and rewards offered, keeping the overall costs down relies on you paying off what you borrowed within a certain period.

For example, if the credit card has an annual interest rate of 20%, and you have $200 left to pay on your balance, you’ll be charged about $3.33 a month. Most of the time, and depending on the credit card you sign up for, it’s all about paying off what you owe within a certain timeframe if you don’t want to take on the interest.

Interest rates for personal loans can however differ depending on your credit score and your ability to pay it back over time. As the interest is applied to a set amount of money, you’ll know exactly what you’re paying back.

Finding the fees

Both options have some common fees and charges that you’ll need to pay to loan money.

Personal loans generally have establishment fees. Basically, this is an amount of money that’s charged to take out the loan. The borrower can also charge you a fee if you decide to pay back the loan earlier than the agreed term, so make sure you check the fine print. This is common in fixed interest rate loans.

Common credit card fees include annual fees to keep the card active, and cash withdrawal fees for when you take out money. If you have a personal loan, you can generally withdraw the cash without any extra fees.

Do your research to understand which product might be best for your situation.

Repayment schedule

Personal loans allow you to be consistent with your repayments – plus, you’ll know the end date for when it’ll be paid off. You stick to a repayment schedule, which can be weekly, fortnightly, or monthly instalments, so you can budget accordingly.

As credit cards provide continuous credit, it’s up to you to manage your budget and make sure your repayments are made before you’re charged interest. Most credit cards have interest-free periods but it is important to be aware how long this period is.

According to the Finder Survey in 2021 on credit cards, 64% of Australian respondents owning a credit admitted to paying a late fee.


Who is eligible for a personal loan?

You can apply for a personal loan if you’re over 18 years of age, a permanent Australian resident, receive regular income, and not be going through the process of bankruptcy. For some lenders, you can still apply if you have a bad credit rating and your application will be assessed along with the other criteria.

The lender also adheres to responsible lending guidelines so that you’re not borrowing an amount that you can’t repay.

Who is eligible for a credit card?

If you’re over 18 years old and meet the bank’s criteria, you can apply for a credit card. However, this doesn’t mean you’ll be approved. The bank will look at whether your income meets the minimum requirements, your current debts, and any other accounts that could impact your ability to repay the money as well as request a credit check.

Typically, you will also need to be an Australian resident.

Effect on credit score

Whether you have a personal loan or a credit card, it can be both good and bad for your credit score.

Taking out a personal loan or a credit card can help you to build a good credit history provided you make regular, and on time, repayments. It shows you can budget and you’re a trustworthy borrower.

If you miss your repayments often, have lots of late fees, and are unreliable, then it will negatively impact your credit score. The same goes for taking out too much credit, as it might seem like you’re in financial difficulty and can be hard to repay.

The trick is to pay off your debts and make reliable repayments to build a good credit score.

In Summary

  Credit card  Personal loan
Borrowing Amount Flexible Set 
Interest Up to approximately 21%, plus interest-free period (card dependent)   Approximately 5% - 20%
Late payment fees Yes  Yes 
Additional fees to look for Annual card fee Early exit fees, establishment fees
Repayments Flexible Weekly, fortnightly or monthly
Eligibility Must be over 18
Australian resident
Meet minimum income requirements
Credit check
Meet bank criteria
Must be over 18
Australian resident
Meet minimum income requirements
Not going through bankruptcy
Meet responsible lending criteria
Effect on credit score Regular repayments can have a positive impact on your credit score, but don’t take out too much credit that it becomes difficult to pay it back Regular repayments can have a positive impact on your credit score, just don’t take out too many
Best used for Flexible borrowing and ongoing credit, good budgeting Specific purposes and purchases, manageable repayments


The verdict

As always, it really depends on your circumstances.

Credit cards can be suitable for those who can control their spending and are able to manage their own repayments. Otherwise, if you’re looking to finance a bigger purchase and can’t pay it off quickly, or you simply need a set amount of money, then a personal loan could work well.

Personal loans can offer transparency in what you’re paying back and when, while if you’re confident in your budgeting then a credit card might be right for you. Both have their time and place.

Just make sure you do your research.

Common questions for people who have credit cards and personal loans

Can you pay off a credit card with a personal loan?

The short answer is yes. If the interest rate is low, it could end up saving you money.

However, if you have a few loans on the go, you can also look into something called a debt consolidation loan. This simply merges all of your loans into one so you can pay them off with a single interest rate and a recurring repayment. Check the interest rate and fees before making a decision.

Can you pay off a loan with a credit card?

Technically yes, but depending on your personal loan it can incur extra fees. Plus, unless you pay off the credit card loan before the interest kicks in, it could be a costly exercise.

If you have both, should you pay off your credit card or your personal loan first?

Both should be repaid on time to avoid affecting your credit score, but if you had additional funds to contribute to your repayments it’s recommended that you pay off credit card debt first. Typically, the interest rate on a credit card is higher than one of a personal loan. It also helps to build a good credit score if you pay off your credit card and make regular repayments.


*As at July 2021: Finder

The information contained in this blog is general advice only and does not take your specific circumstance into consideration. You should assess your own financial position, objectives, and requirements before making any financial decisions.  

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