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What’s the difference between a personal loan and a credit card?

Credit card or a personal loan? The answer depends on what you’re buying and how you intend to pay it back.

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With Aussies currently in debt equal to about 150% of their household income, it’s no surprise that people are exploring different ways of paying it back. It usually comes down to two options; credit cards and personal loans. Both have pros, cons, penalties and fees, but choosing the way that best suits your financial situation could potentially save you thousands in interest repayments.

The main points of difference

Personal loans and credit cards are both types of credit provided by financial institutions. They can be for similar amounts, but personal loans are for a finite amount of time, whereas credit cards are a revolving line of credit. Personal loans are usually available for terms of between one and seven years and you receive the entire loan amount at the beginning of the term. You then make ongoing payments to repay the loan in full.

Credit cards do not come with terms. You are offered a credit limit and required to make ongoing repayments to keep your account in good standing. You can continually draw up to and including that limit and spend however much you choose on your card. You need to repay a percentage of whatever you spend each month.

Structurally, credit cards and personal loans are similar. They are both forms of credit and they both require a monthly repayment. What differs are the features and fees. Credit cards offer interest-free days, balance transfers and rewards but personal loans are more suitable for debt consolidation and have a maximum loan term so the debt is always repaid. While annual fees are popular with credit cards, personal loans favour application and monthly services fees.

Comparison of personal loans and credit cards

ING Personal Loan

ING Personal Loan

8.99 % p.a.

fixed rate

9.13 % p.a.

comparison rate

  • No ongoing fees
  • Waived application fee for Orange Everyday cardholders
  • No early repayment fee
Security Logo

100% confidential application

ING Personal Loan

The ING Personal Loan offers the stability of a fixed rate with flexible repayment options.

  • Interest rate: 8.99% p.a.
  • Comparison rate: 9.13% p.a.
  • Interest rate type: Fixed
  • Application fee: $100
  • Minimum loan amount: $5,000
  • Maximum loan amount: $30,000
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Promoted
Updated April 9th, 2020
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Service Fee Monthly Repayment
ING Personal Loan
8.99% (fixed)
9.13%
$5,000
2 to 5 years
$100
$0
You'll receive a fixed rate of 8.99% p.a.
Benefit from no ongoing fees, no early repayment fees and flexible loan terms on amounts up to $30,000.
Harmoney Unsecured Personal Loan
From 6.99% (fixed)
7.69%
$2,000
3 to 5 years
$500 ($200 for loans of below $5,000)
$0
You'll receive a fixed rate between 6.99% p.a. and 28.69% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.
RateSetter Unsecured Personal Loan - 3yr Variable
From 7.37% (variable)
9.38%
$2,001
6 months to 5 years
$299 (Based on $10,000)
$0
You'll receive a variable rate between 7.37% p.a. and 14.99% p.a. based on your risk profile
A flexible loan with amounts from $2,001 and terms starting from 6 months. Interest and comparison rates calculated for a loan term of 3 years.
SocietyOne Unsecured Personal Loan
From 7.5% (fixed)
9.51%
$5,000
2 to 5 years
from 3% of loan amount
$0
You'll receive a fixed rate between 7.5% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.
Wisr Personal Loan
From 7.95% (fixed)
8.78%
$5,000
3 to 5 years
$595 (Establishment Fee)
$0
You'll receive a variable rate between 7.95% p.a. and 19.45% p.a. based on your risk profile
A loan from $5,000 that charges no fees for extra or early repayments. Keep in mind security is required in some cases.
Coles Personal Loan flybuys Members
From 9.99% (variable)
10.95%
$5,000
3 to 5 years
$199
$10
You will receive a variable interest rate between 9.99% p.a. and 17.99% p.a. based on your risk profile.
Borrow up to $50,000 and benefit from exclusive flybuys member interest rates, extra points and additional savings on your Coles groceries.
Symple Loans Personal Loan
From 5.75% (variable)
7.6%
$5,000
1 to 7 years
from 1% to 5% of the loan amount
$20
You'll receive a personalised interest rate from 5.75% p.a. to 19.99% p.a. based on your risk profile
Borrow up to $50,000 to pay for what you need.
Coles Personal Loan Non - flybuys Members
From 12.99% (variable)
13.93%
$5,000
3 to 5 years
$199
$10
You will receive a variable interest rate between 12.99% p.a. and 19.99% p.a. based on your risk profile.
Borrow up to $50,000 with additional rewards like flybuys points and savings on your Coles shopping.
CUA Unsecured Fixed Rate Personal Loan
9.89% (fixed)
10.14%
$5,000
1 to 7 years
$175
$0
You'll receive a fixed rate of 9.89% p.a.
An unsecured loan from $5,000 with flexible repayments and no monthly fee.
CUA Unsecured Variable Personal Loan
11.89% (variable)
12.15%
$5,000
1 to 7 years
$175
$0
You'll receive a variable rate of 11.89% p.a.
Borrow from $5,000 with the option for flexible repayments and no monthly fees.
CUA Discount Variable Personal Loan (Loans over $30,000)
10.89% (variable)
11.15%
$30,000
1 to 7 years
$175
$0
You'll receive a discounted variable rate of 10.89% p.a.
Borrow over $30,000 and receive a discounted interest rate. No monthly fees and a redraw facility also available.
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Compare up to 4 providers

Updated April 9th, 2020
$
% p.a.
Name Product Balance transfer rate Purchase rate (p.a.) Annual fee Amount saved
HSBC Platinum Credit Card - Balance Transfer Offer
0% p.a. for 22 months
19.99% p.a.
$129 p.a.
Enjoy a balance transfer offer, yearly annual fee refund, airport lounge passes and complimentary insurance covers.
Coles No Annual Fee Mastercard
0% p.a. for 18 months with 1.5% balance transfer fee
19.99% p.a.
$0 p.a.
Earn flybuys points for your spending and save with an ongoing $0 annual fee and 0% p.a. on balance transfers for 18 months.
Qantas American Express Ultimate Card
20.74% p.a.
$450 p.a.
Get 100,000 bonus Qantas Points, a $450 Qantas Travel Credit and 2 yearly complimentary Qantas Club lounge invitations. Ends 14 Apr 2020.
Bendigo Bank Low Rate Mastercard
0% p.a. for 18 months with 2% balance transfer fee
11.99% p.a.
$45 p.a.
A no-frills credit card with a competitive annual fee and 0% p.a. interest rate on balance transfers for the first 18 months.
Coles Low Rate Mastercard
0% p.a. for 6 months
12.99% p.a.
$58 p.a.
Save with a low purchase interest rate, earn flybuys points as you spend and get up to 55 days interest-free.
Qantas American Express Discovery Card
20.74% p.a.
$0 p.a.
Earn uncapped Qantas Points on your purchases and pay $0 annual fee for life.
ING Orange One
11.99% p.a.
$0 p.a.
Keep costs low with $0 annual fee and 100% foreign transaction fee rebates. Available when you hold or open an Orange Everyday account.
American Express Business Explorer Credit Card - Online Offer
16.99% p.a.
$0 p.a. annual fee for the first year ($395 p.a. thereafter)
ABN holders w/ $75,000 revenue. Get 100,000 bonus points and a $0 first year annual fee. Plus, 2 airport lounge passes. Ends 22 Apr 2020.
American Express Velocity Platinum Card
20.74% p.a.
$375 p.a.
Get 50,000 bonus Velocity Points when you spend $3,000 for the first 3 months. Plus, 100 Status Credits and luxury travel perks.
American Express Velocity Escape Card
20.74% p.a.
$0 p.a.
Earn uncapped Velocity Points on purchases and save with a $0 annual fee for life.
American Express Platinum Edge Credit Card
20.74% p.a.
$195 p.a.
Receive a yearly $200 Travel Credit and complimentary domestic and international travel insurance, plus earn up to 3 Membership Rewards Points per $1 spent.
Qantas American Express Premium Card
20.74% p.a.
$249 p.a.
Enjoy 30,000 bonus Qantas Points, 2 complimentary Qantas Club lounge invitations per year and the protection of complimentary insurance covers.
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Compare up to 4 providers

Compare a range of personal loans

What to consider with a personal loan

ProsConsSuitable for
  • Lower interest rates than credit cards
  • Repayment schedule means your debt comes with an end date
  • Cheaper in the long term
  • Not tempted to spend
  • Minimum loan term means that you'll carry the debt for more than a year
  • Can be inflexible (may charge for redraw options or not offer early repayments)
  • Can take longer to apply for
  • Large one-off purchases more than approximately $5,000 like renovations, holidays and cars
  • Large debt consolidations
  • Borrowing over a long period of time

Credit card points of consideration

ProsConsSuitable for
  • Immediate spending
  • Can come with rewards
  • Great option if you need a constant cash flow
  • Balance transfer for debt consolidation
  • Interest-free days
  • Usually carry higher interest rates
  • Only require a minimum repayment each statement period which means your debt can roll on and on
  • Balance transfer rate reverts to the cash advance rate
  • Smaller purchases less than approximately $5,000
  • Small debt consolidations
  • Short-term debts
  • Everyday shopping or retail purchases to earn reward points
  • Spending amounts that you can pay back within the introductory period

personal-loan-vs-credit-card2Personal loans vs. credit cards: What's the right product for you?

There is no single answer to this question. While a credit card might be the right choice in one situation, a personal loan might be more suitable in another, and in a third situation, neither might be appropriate. Here's how to decide what credit product will best meet your needs:

  • What are you applying for the funds for? If you need money for an immediate, one-off expense, such as a large purchase, then a personal loan may be suitable. If you want continued access to credit, then a credit card may be more suitable. However, keep in mind that there are flexible personal loan and credit card products. For example, you can top-up some personal loans with additional funds, and you can also use credit cards to pay for one-off purchases, but as the loan term is ongoing you may be tempted to keep the repayments rolling over instead of paying it back in full.
  • How do you manage your repayments? As mentioned in the point above, credit cards are an ongoing form of credit, while personal loans have an end-date. If either a personal loan or credit card will work for your needs, you may want to consider how disciplined you are with repayments. If you think you may be tempted with the credit line sitting there, then a more structured repayment schedule, such as that offered by a personal loan, may be worth considering.
  • Are you consolidating debt? It's important to consider your options carefully. How much debt do you have and does it include loans and credit card accounts? Make sure you will be able to bring across all your accounts to consolidate – for instance, only certain providers allow you to balance transfer loans to a credit card. You also have the option of consolidating your credit card to a personal loan, which can help you save.
  • How much are you looking to borrow? Credit card limits differ, as do personal loan limits. Generally, for an unsecured personal loan you cannot apply for more than $55,000. Secured personal loans are different but you will not be able to be approved for more than the asset you are using as security. You may be able to access a higher credit limit with a credit card but you will generally need to meet stricter eligibility criteria.

Things to consider when deciding between personal loans and credit cards

  • Interest and comparison rates. If you compare interest rates, generally personal loans are cheaper. The true cost is reflected in the comparison rate as you need to consider any application or service fees. Since credit cards never display the comparison rate, it’s important to remember that you take into account the annual fee of the credit card.
  • Fees. Personal loans usually have an application and service fee, whereas credit cards usually just have the annual fee, though you can find one without one.
  • Your financial situation. If you have good control over your spending and you regularly follow your budget then a credit card could be suitable. Personal loans also can charge you early repayment fees, you will need to confirm whether this is the case with your lender. On the other hand, if you are slow at repaying debts, dragging it over the introductory period could incur high interest.

Matthew knows his financial situation

2000 Mitsubishi lancer

Matthew is looking to buy his first car and has found a 2000 model Mitsubishi Lancer selling at $5,000 at his local dealership. As this is not a private sale, he has a few different payment options. He wants to know if it's cheaper to pay for the car on his credit card and make extra repayments or apply for a personal loan with the same provider. As you can see from the table below, in the end it’s probably cheaper for him to purchase the car on his credit card, saving him up to $403.

FeaturePersonal loanCredit card
Loan amount$5,000$5,000
Loan term2.5 years2.5 years
Interest rate14.09% p.a.12.99% p.a.
Application fee$150$0
Annual fee$0$58
Monthly fees$10$0
Monthly repayments$200$200
Interest repaid$961$862.11
Interest plus fees$1411$1007.11

Rates and figures correct as of 16/08/2013

Regardless of which you choose, you need to be disciplined in the way you use your credit card or personal loan and make regular repayments. With a credit card, always aim to pay back more than the minimum repayment to save on interest and if you have a personal loan, try to make extra repayments if you’re not penalised for it.

Picture: Shutterstock

Related Posts

Personal Loan Offers

Important Information*
Logo for Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan

You'll receive a fixed rate between 6.99% p.a. and 28.69% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.

Logo for NAB Personal Loan Unsecured Fixed
NAB Personal Loan Unsecured Fixed

You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.66% p.a. to 19.59% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.34% p.a. comparison rate) or less. See Comparison rate warning in (i) above. Application fee of $150 waived off.

Logo for SocietyOne Unsecured Personal Loan
SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 7.5% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

Logo for Pepper Money Unsecured Fixed Rate Personal Loan
Pepper Money Unsecured Fixed Rate Personal Loan

You'll receive a fixed rate between 7.95% p.a. and 16.95% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Make additional repayments or pay off the loan early, penalty-free.

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8 Responses

  1. Default Gravatar
    ChrisJune 24, 2015

    Hi

    I’m looking to consolidate some debt about $27k on 2 credit cards. Last year I had a difficult year of being out of work for a considerable period.

    One credit card with my main bank had a balance then of $10k from a previous credit card balance transfer I had to put into financial hardship for a while, so my main bank are unlikely to support me in getting a personal loan to restructure my debt.

    Personal loan or another credit card balance transfer?

    Will other credit card providers baulk at accepting a credit card application now given the financial hardship I went thru last year?
    Earning good money again now.

    • Avatarfinder Customer Care
      ElizabethJune 24, 2015Staff

      Hi Chris,

      Thanks for your question.

      The first step might be ordering a free copy of your credit file to see what kind of state your credit is in. Once you know this you can get a better idea of the loans or credit cards you can apply for. You can take a look at our debt consolidation guide on this page to see the options you have available to you – keep in mind that this is a large debt you are trying to consolidate, so having a chat to the banks/lenders before you apply might be a good idea.

      You can also give the free financial counselling service a call on 1800 007 007 as they can provide you with some free personal advice – as we’re a financial comparison service we can only provide general information, so they may be able to steer you in a certain direction.

      I hope this information will be of use.

      Thanks,

      Elizabeth

  2. Default Gravatar
    JarrydSeptember 12, 2014

    I am looking to buy a few things for around $10,000 and am trying to decide wether it will be cheaper for me to get a personal loan or a credit card.
    The loan is about 14% p.a and the card is about 11% p.a on purchases. I can afford $200 a month and more on good months (work hours fluctuate).

    • Avatarfinder Customer Care
      ShirleySeptember 15, 2014Staff

      Hi Jarryd,

      Thanks for your question.

      Unfortunately we don’t recommend specific products, services or providers. I’d recommend that you use our personal loan calculator and credit card interest calculator to see which option suits your financial and personal situation.

      Cheers,
      Shirley

  3. Default Gravatar
    ChinMay 5, 2014

    Hi Shirley,

    I believe your case study is some what misleading as in order for Matthew to buy the car on the credit card then it has to be from a dealer. If it’s a private sale then this case study is not right as you did not mention the facts about Paying via credit card as to who can receive that payment.

    Thanks

    • Avatarfinder Customer Care
      ElizabethMay 6, 2014Staff

      Hi Chin,

      That’s a great suggestion. We love improving content for our readers, so we’ve updated the case study above.

      Thanks,

      Elizabeth

  4. Default Gravatar
    NickAugust 20, 2013

    Hi
    I am trying to find out if although having successfully completing a Part IX Debt Agreement earlier this year (and earlier than agreed) has that stuffed up my credit rating to the extent that credit cards are unobtainable.
    Could you please advise me

    • Avatarfinder Customer Care
      ShirleyAugust 20, 2013Staff

      Hi Nick,

      Thanks for your comment.

      Unfortunately, this is likely to be the case. The filing of a debt agreement is equivalent to a debtor formally announcing that they are insolvent and unable to meet their financial obligations.

      Please see this page for more information.

      Hope this helps,
      Shirley

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