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Credit Card vs. Personal Loan: Know Which to Choose

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When facing a large or unplanned expense it isn’t always possible to use available funds in a checking or savings account. In these cases, many find themselves leaning towards other options such as a credit card or a personal loan, but aren’t sure which to choose.

You can pay for virtually anything with a personal loan or a credit card, including:

  • Medical bills
  • Home improvement costs
  • Consolidating other debts
  • Vacations
  • College expenses

While there are some similarities between funding a large purchase with a credit card or personal loan, there are some key points to keep in mind to help you choose what’s right for your specific needs.

Similarities Between Credit Cards and Personal Loans

With either option, you are essentially borrowing money and agreeing to make monthly payments on what you owe. In both cases, a portion of your monthly payment will go towards the outstanding balance and a portion will go towards the interest. The higher the interest rate, the more of your monthly payment will go towards paying interest vs. reducing the actual dollar amount owed.

With both credit cards and personal loans, the better your credit score and financial history, the lower interest rate you will qualify for—which also means a lower monthly payment.

Differences Between Credit Cards and Personal Loans

While both can help you pay for any number of expenses, there are unique differences to consider.

Credit Card

A credit card is a revolving line of credit, meaning as you pay down the balance your available credit increases. As long as you stay below your credit limit, you can continue using that available credit for other purchases.

Your monthly payment can also vary each month depending on your outstanding balance and the minimum amount you owe. The higher your outstanding balance, and the higher your interest rate, the higher your minimum monthly payment.

Also, with some credit cards, interest rates can change over time which means your minimum monthly amount due may also change.

Personal Loan

With a personal loan you get approved up-front for a specific amount. These funds are typically deposited directly into your account, or sent in the form of a check, within a few days.

As part of the approval process, your lender will provide the interest rate and repayment schedule ahead of time. Before you even accept the funds, you will know exactly how much the monthly payment will be, and how long it will take to pay back the loan. If you stay on schedule, there won’t be any surprise payment or interest rate changes down the road.

When to Choose a Credit Card for a Large Expense

Most financial experts agree credit cards are best used for everyday purchases, like gas or groceries—the smaller expenses you plan to pay off every month.

However, utilizing a credit card for a large purchase can work to your advantage if you have a great interest rate, or a special introductory rate, coupled with a dedicated plan to pay off the purchase before the introductory rate spikes.

Compare Jeanne D’Arc Credit Card Options

Another consideration is the cashback or reward point options your credit card offers. For example, if you finance a $5,000 bathroom renovation with a plan to pay off the charge in 6 months, and that charge will also earn 2 free round-trip airline tickets, those perks are worth considering. Just make sure to also consider the interest rate. If the amount you are re-paying in interest outweighs the cost of the airline tickets, those credit card perks aren’t going to work in your favor.

In this case a personal loan might be a better option.

When to Choose a Personal Loan for a Large Expense

Personal loans come with the flexibility to use the funds for any need you have, along with a set payment schedule, so you know exactly how the loan payment fits within your budget. And in most cases, personal loans offer a lower fixed interest rate than credit cards so you pay less over the life of the loan.

With a personal loan you can use the funds in any way that’s right for you. This could mean having cash on hand to pay contractors who might not accept credit cards or using a low-rate personal loan to consolidate higher-rate debt. Some members even opt for a personal loan to create a backup funding source that’s always available.

With a personal loan from Jeanne D’Arc our members enjoy:

  • Borrowing up to $15,000 without collateral
  • No application fees
  • No prepayment penalty

Read More about Personal Loans from JDCU

Deciding Which is Best for You

Jeanne D’Arc has a variety of credit card and personal loan products designed to best serve our members. Get in touch with our membership team on our website, phone, email, chat, or safely in one of our branches. Contact us—we are here to help!

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