What’s the Difference Between a Personal Loan and a Credit Card?

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May 11, 2021

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If you’ve ever found yourself making a big purchase, you’ve undoubtedly had to make decisions about where the funds would come from. With the convenience of store credit cards (and the pressure to utilize them), it might be tempting to assume all lending is created equal — but that’s definitely not the case. Today we’ll explore the difference between credit cards and personal loans – and why the latter is your best option for accessing the money you need when you need it most. 

The difference in a nutshell 

While both personal loans and credit cards will give you access to funds, the main difference is that personal loans offer a set amount of money that you pay back month by month, while credit cards offer a line of credit and a revolving balance based on your spending. 

Credit cards have hidden fees

Credit card companies can set their own fees. Unless you read through the pages of fine print when you signed for your credit card, you’ve probably breezed right past the details of your card without even realizing it. 

A few common credit card fees include:

Annual fee: This is the set amount a bank charges the cardholder to use their card each year. Annual fees can run hundreds of dollars and are commonly applied to reward cards that offer perks like free travel miles or cash back. (Suddenly that “free trip” isn’t looking so free, is it?) Unfortunately, in most instances if your card has an annual fee, you’ll be required to pay it whether you use the card or not. 

Late fees: If you’re late making a payment on your card, expect to see a late fee on your bill. 

Returned payment fees: If your payment is rejected due to an issue (like insufficient funds, for example), you’ll likely be subject to a returned payment fee. 

Cash advance fee: If you decide to borrow cash against your credit card, expect to pay a much higher interest rate than the one you pay on purchases. 

Foreign transaction fee: If you make purchases with vendors outside the country (in person or online), many credit cards will tack on an additional foreign transaction fee. 

Personal loans have a fixed rate APR

With credit cards, you are subject to a variable APR. This means the rate you pay on money borrowed (or charged, rather) to your card can and will vary based on the index interest rate. If you carry a balance, you could find yourself paying more and more in fees as rates go up over time. 

With a personal loan, you are locked in at a fixed rate. This means you won’t be subject to fluctuations in the market, and you’ll know exactly what to expect from your payment each month. 

Personal loans offer a fixed payment schedule

Nobody likes surprises when it comes to their money. With a personal installment loan, we lend you a set amount of money and you pay it back in installments each month. When you close on your loan, you’ll know exactly how much you’re paying and when it is due each month. This makes is easy to plan ahead and factor your loan payment into your monthly budget. 

With credit cards, your payment amount depends on a variety of factors, including the variable APRs we mentioned above. Over time, additional spending and charges to your card will also drive up your minimum payment due. All these factors can make it challenging to know exactly how much you need to budget to cover your credit card payment from month to month. 

Planning an upcoming purchase? Apply for a loan from World and get the money you need.