Credit cards vs. personal loan

Credit cards and personal loans: what’s the difference?

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Both are popular ways to borrow money, but the way you borrow with them differs in big ways.

Credit cards are everywhere. And personal loans are becoming popular. But there are key differences you should know about if you're considering either.

1. Repayment period.

Credit cards usually involve revolving debt. That means, in a given month, you're free to borrow what you'd like up to a certain limit. Aside from required minimum payments, credit cards generally allow you to forego payment from one month to the next, carrying over any existing debt. So, for the most part, you can repay as much or as little as you want every month.

Personal loans typically operate in a different way. They're more like mortgages and student loans in the sense that you get a lump sum of money at the beginning. Then, that debt is divided into fixed monthly payments. Though many personal loans will allow you to pay back the entire loan in one lump sum, personal loans generally only require that you pay back a steady amount each month.

2. Interest.

Credit cards usually give you the opportunity to avoid having to pay monthly interest on your debt. Of course, that means you have to pay off the balance, in full, every month. Also, credit card interest rates are typically variable (can change from time to time) and on the higher side, in a very, broad, general sense.

Personal loans may also give you the opportunity to avoid having to pay interest every month if you're able to come up with the full loan amount to pay the entire balance before the first payment is due. However, the major difference between credit card interest and personal loan interest is that some personal loans offer fixed interest rates. Unlike with most credit card rates, fixed interest rates stay the same over the life of the loan. Also, personal loans, in a very general sense, tend to have lower interest rates than those associated with credit cards.


Credit card companies generally hope to have customers for the long term. That means they may offer perks like rewards, miles, lounge access and the like to encourage people to sign up and stay with their brand.

Personal loans generally don't offer such perks, one big reason being that they're set up as temporary credit vehicles. The idea is you use them to get some up-front money quickly and then pay that money back over time. Once it's paid off, it's paid off and you go your separate ways.

There may be other differences between credit cards and personal loans not mentioned here. And specific creditors or lenders may not adhere to the practices described above. However, this should give you a general idea of what to expect when you're considering either or comparing both. Just remember that whether you're borrowing with a credit card or with a personal loan, you're still borrowing. So use these tools responsibly.

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