When you need to borrow, you might think about applying for a personal loan or credit card depending on your financial situation. Both options help you get the money you need but under very different terms. While credit cards are ideal for short-term and small expenses, a personal loan is a better option for high ticket items. Depending on your financial goals and situation, one might be a better option than the other.

Which one is better?

There is no single answer because we each have a unique financial situation. While a credit card might be the right choice for one person, a personal loan might be more suitable in another situation and sometimes neither one is a good solution.

Key Differences – Credit Card vs. Personal Loan

The biggest difference is that they involve different types of credit.

• Credit Cards are revolving credit which means you can borrow as you need it, and your payments are based on a percentage of your outstanding balance at a given time.
• Personal Loans are installment loans which mean you receive the money in a lump sum and repay the loan in fixed monthly payments for a fixed period.

These two differences drive the rest of the characteristics of these two types of loans.

Personal Loan	Credit Card
Installment loan Secured or unsecured Known end date for when the debt is paid off Typically, lower interest rates	Revolving credit Secured or unsecured May offer rewards Some come with a 0% introductory offer on purchases and/or balance transfers Possible to stay in debt forever if you use the card faster than you pay it off Won’t owe any interest if you pay the balance in full each month Typically charges higher interest rates

 

Use a Personal Loan When…

• You have a large, one-off expense like a car repair, home improvement or consolidating debt.
• The biggest advantage of a personal loan is that the interest rate is usually lower than a credit card and you will have fixed payments for a fixed term, making it easier to budget.
• The biggest disadvantage is that a personal loan is for infrequent, larger purchases and they don’t offer rewards.

Use a Credit Card When…

• You have smaller, more frequent expenses that you can pay off quickly. Ideally, we recommend paying off your balance in full each month. You are only charged interest if you carry a balance from month to month so if you pay it off in full, you get a 0% short-term loan.
• If earning rewards is important to you, credit cards are the way to go. But make sure the rewards you earn far offset any annual fees or interest that you owe.
• Some cards offer a 0% intro rate for a specific period. If you want to consolidate debt and are disciplined to pay off the balance before the intro period ends, this could be a good deal for you.
• The biggest advantage is if you use your card for everyday spending and pay it in full each month, this “free, short-term loan” can be a great way to earn cash back or reward points. They are also a good backup for emergencies.
• The biggest disadvantage is that it’s very easy to swipe and rack up a balance that’s hard to pay off. If you’re only making the minimum payment, it’s very difficult to pay it off.

Tough Times? We’re Here to Help.

If rising inflation is taking a bite out of your budget, Members Trust can help make ends meet.

Rates as low as 7.75% APR*

Flexible repayment terms

Affordable payments

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*APR = Annual Percentage Rate. Risk-Based Pricing Notice: The Annual Percentage Rate (APR) is quoted “as low as” depending on the applicant’s individual credit history. Rates quoted are based on approved credit. Your APR may be higher based on your credit information obtained from consumer credit reporting agencies Members Trust FCU uses. Rates and terms are subject to change.