Personal loans vs credit cards

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Whether you’re planning a big-ticket purchase, looking to consolidate your debts, or have another need for credit, you might find yourself weighing up your options between a personal loan product and a credit card. Both are popular credit products in Australia and elsewhere around the world, and may be suitable for you depending on your circumstances.

Personal loans and credit cards both have their pros and their cons, which we’ll look to explore now.

Personal Loan Pros

Usually a Lower Interest Rate

Depending on the amount you are borrowing and additional factors including your credit rating, personal loans will usually offer you a lower interest rate than a credit card equivalent. For example, if you were borrowing $5,000 you could expect to pay a lower interest rate across the time it will take to pay off the balance in comparison to if you had the same balance on a credit card.

Accessing a lower interest rate will ultimately depend on where you go to access your loan, but because of this, you also enjoy the added benefit of a loan being cheaper in the long-term.

Clear Repayment Schedule

If you apply to borrow $5,000 over a period of three years, you know what your repayment commitments are prior to accepting the loan, and you know when you will have the loan paid off in full. This is great not just for financial planning, particularly if you have a fixed interest rate personal loan, but also a useful motivational tool as you know when your commitment and obligation to the loan will end should you keep up your repayments.


When you apply for a personal loan not only can you control the amount you borrow, you can also choose the loan term and sometimes the repayment frequency. You can see how this works by trying our personal loan calculator. This allows you to select a personal loan product with specifications to suit your ability to repay within your means and avoid financial difficulties when doing so.

No Temptation to Spend or Add Debt

While some personal loan products do offer a withdrawal facility during the loan term, the interest and fees that apply will often be such that using it would prove expensive. In most cases, you take out your personal loan, use the money to make a purchase or pay off and consolidate existing debts, and get on with your life while making your regular repayments. You don’t need to resist the temptation to spend any more, therefore avoid the possibility of adding more debt.

Personal Loan Cons

Minimum Terms

Outside of the payday loan industry, personal loans usually have minimum terms, which often start at 12 or 18 months, depending on the types of loans and the amount of money available for borrowing. This can be a downside if you want to make a purchase and could repay a balance in six to nine months, as you end up paying additional interest unnecessarily.

In this respect, personal loans do have a degree of inflexibility, particularly if there are fees for early repayment, or you still have to pay the full balance of interest upon early settlement.



Might be Suitable For

Usually lower interest rates in comparison to credit cards. Minimum term means you could accrue additional interest or fees. Large one-off purchases or paying for events such as weddings or once in a lifetime holidays.
Fixed repayment schedule means you can plan finances and know when you will have paid off your loan. Potential for loan to be inflexible depending on early repayment options. Debt consolidation.
Flexibility in choosing your borrowing amount, loan term, and repayment frequency and amount. Usually no access to additional credit or borrowing if you need it. Unexpected expenses or bills.
Usually cheaper in the long-term. Borrowing over a longer period.
No temptation to spend or ability to add extra debt.

Credit Card Pros

Spend When You Want

If you have a credit card in your pocket then you can spend when you want on what you want so long as you have the balance available. Credit cards can add greater flexibility to your ability to spend, enable you to enhance your lifestyle, and provide the instant ability to buy.

Good Option if You Manage the Interest

Smart consumers use credit cards but don’t pay any interest on their balance by ensuring they clear it before the conclusion of any promotional period, then doing so each month. As well as being a useful solution if you’re savvy with finances, if you’re in stable employment with a good income the cash flow you have makes it easier to pay the balance when you need to, and you can manage your credit card spending as such that you will strengthen your credit score over time.

Balance Transfers and Promotions

While 0% balance transfers and promotional rates on purchases when you first open an account are the most typical offers seen on credit cards, there might also be offers like ‘Interest Free Days’ or specific periods when you can transfer other balances at 0% or a reduced rate. Some cards also offer incentives such as cashback and other reward based schemes, meaning the smart consumer can often make a profit by using their credit cards wisely.

Credit Card Cons

Usually a Higher Interest Rate

Not a problem if you stick to paying off the full balance monthly, but if you don’t do this, or fall into the habit of only making the minimum repayment, interest can soon start to add up, and the usually higher rate in comparison to a personal loan means your debt level can escalate quickly.

Easy to fall into the Minimum Repayment Trap

Though we mentioned it above this definitely deserves an individual mention as a credit card con. You might think you’ll make the minimum payment one month to free up some cash flow, which on the face of it seems fine. This can easily roll over into the next month, and before you know it, you’ve gone a year only making minimum payments and have significantly increased your balance with interest even if you haven’t used the card much at all.

If you have taken on extra debt and committed your finances elsewhere, it can then be difficult to pay any more than the minimum repayment, which ultimately may end up doing little else than just servicing the interest each month.

Expensive if you Need Cash

Although transactions increasingly utilise card payments, if you do need cash and are unable to access it via your bank account, advance fees – a percentage or minimum payment depending on what you withdraw – can be prohibitive, with a higher interest rate often applied on top of the initial fee.



Might be Suitable For

Access to credit as and when you need it. Usually a higher interest rate than a personal loan. Small purchases that may not require a larger personal loan.
Good option if you are smart at managing your finances. Will usually cost more than a personal loan owing to the higher interest, particularly if you are borrowing for longer periods. Consolidating small levels of debt or other card balances if managed carefully.
Balance transfers and promotions mean you can sometimes profit from your credit card spending. Easy to fall into the ‘minimum repayment trap.’ Short term debts, i.e. a purchase you can pay for within six to nine months when a minimum loan term may be 12 – 18 months.
 Fees can be prohibitive and higher interest may be applied if you need access to cash. Taking advantage of cashback and reward schemes.
 Can end up paying a higher level of debt for longer if you use as a consolidation option (balance transfers) but don’t pay off the balance within promotional period.

Personal Loans Vs Credit Cards

Both personal loans and credit cards are worthwhile financial products to consider depending on your circumstances and your reason for needing access to credit. It is worth remembering that all of the credit card pros highlighted hold the caveat of ‘if you manage how you use them,’ and that for this reason in particular they can often end up being a more expensive financial solution in comparison to a personal loan.

Disclaimer:  This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action, you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.

Categories: Personal Finance, Personal Loans

Things you should know

Applications for finance are subject to NOW FINANCE’s lending and approval criteria. Terms and conditions may apply. No establishment, account keeping or early repayment fees will apply to all new personal loans. Charges such as default or enforcement costs may apply if you do not comply with the terms of your loan. Settlement times may vary depending on individual circumstances. Loan repayment terms range between 18 months to 7 years with interest rates ranging from 5.95% p.a. (5.95% p.a. comparison rate*) to 17.95% p.a. (17.95% p.a. comparison rate*).

*About Comparison Rates

The Comparison Rate is designed to help you understand the overall cost of the personal loan. It combines the amount of the loan, loan term, repayment frequency, interest rate, fees and charges into a single rate to show the total true cost of the loan. The comparison rates for the NOW FINANCE loans are based on a loan of $30,000 over 5 years. WARNING: The comparison rates given are true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Due to the fact NOW Finance does not charge any establishment, account keeping or early repayment fees, the true cost of the loan or Comparison Rate will always equal the interest rate quoted.

NOW FINANCE is a trademark of Now Finance Group Pty Ltd ACN 158 703 612 Australian Credit Licence number 425142, as agent for NF Finco 2 Pty Ltd ACN 164 213 030