Loan vs credit card: which one is better?

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A woman budgeting at a table

Credit cards and loans can help you manage both long-term debts and short-term finances. However, it can take time to pick the right one for you.

Below, we'll discuss:

Pros and cons of a credit card


People use credit cards for different reasons, as they have several advantages.

Improving credit score

Paying back your credit card regularly and on time can help improve your credit score. For example, banks design credit builder cards to help you with this.

Purchase protection

You'll get protection for certain purchases with a credit card under Section 75 of the Consumer Credit Act.

Helps with managing debt

Sometimes, using a credit card can help manage debts. However, it's not always suitable, so read our guide on the ins and outs of paying off a loan with one.

Managing interest

People sometimes move credit card debt from one card to another with 0% interest. We recommend speaking to a qualified financial adviser before doing so.

You can find one through the Personal Finance Society.

Preparing for emergencies

It can help to have money available for emergencies. However, you should only use it for purchases you know you can pay back.

Making payments abroad

Using certain credit cards in a foreign country can charge low to no fees, so they can be a good option for spending money abroad.


Most of the disadvantages of credit cards come from misusing them.

Increasing your debt

Debt can happen if you use a credit card with unaffordable interest rates, can't keep up with monthly payments or can't pay off the balance during the 0% interest-free period. 

Get support if you need help managing your debt.

Decreasing your credit score

While using a credit card can increase your score, missing repayments could lower it. Not paying back on time impacts your chances of acceptance for loans and other types of borrowing. 

Learn more about credit scores.

Higher interest rates than loans

Credit cards can have higher interest on borrowing compared to loans. Sometimes, the interest can increase to unaffordable levels, meaning you won’t be able to make your repayments or could pay back significantly more than needed.

Credit card fees

Credit card companies have fees for things like going over your credit limit or balance transfers. Read the T&Cs of your credit card to avoid getting charged unnecessary fees.

Getting charged for taking out cash

Most credit card providers charge you for withdrawing money. If you can, taking out cash using a different method may be a cheaper option.

Pros and cons of a personal loan


Loans are a popular borrowing method for numerous reasons.

Fund larger purchases

A personal loan allows you to borrow more money, meaning you can use it on purchases like a car. You pay this back over time, which makes some purchases easier to manage.

Some have lower interest rates

Some loans have comparatively lower interest rates, especially compared to credit cards. Having a lower interest rate means you pay less back over time. 

However, this isn't always the case, so follow independent advice first.

Flexible spending

You can use an unsecured personal loan for many purposes, such as to buy a car or renovate your home. 

It helps build credit

Paying back a loan and not missing payments can increase your credit score, which can improve your chances of getting accepted for borrowing in future.


Loan fees

Loans have various fees if you break the T&Cs. For example, some may have an early repayment fee, while others may charge you for missing payments. 

For this reason, it's important to get independent advice before accepting a loan.

High interest

Some loans have a high Annual Percentage Rate (APR). A higher APR means you'll need to pay more interest, so always review this before accepting a loan.

Impact on your credit score

Failing to pay your loan back on time will negatively impact your credit score, which can be difficult to restore.

When should you consider applying for a credit card?

You’d usually get a credit card for: 

  • small, unexpected purchases 
  • transferring debts at a cheaper rate
  • improving your credit score 
  • earning cashback and rewards
  • getting extra protection for purchases

When should you consider applying for a personal loan?

You’d normally use a personal loan for: 

Personal loan vs credit card: which one is right for you?

It depends on what you need to borrow money for.

Personal loans suit bigger expenses more. You'll get the money relatively quickly and know how much to pay monthly.

A loan typically gets you a better interest rate than a credit card, assuming your credit score's good. It might be for you if you want to consolidate your debts or make a larger purchase.

However, credit cards have some advantages over loans. A credit card could be more cost-effective for small purchases you wish to repay over a short period of time or within an interest free period. 

You'll get different offers for loans and credit cards, so always take the advice of an independent financial advisor to make sure you get the right deal for you.

Whatever your plans, an Admiral loan could help