Which is best: personal loans or credit cards?

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on November 25th, 2021       

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When you need to purchase something but can’t pony up the money for it, what is better? Taking out a personal loan or putting it on your credit card? Looking at the numbers, a personal loan looks more appealing than a credit card. But there’s more to it than the numbers. What other factors are in play when it comes to choosing a personal credit product?

Loans win on rates, but lose in convenience

Personal loans are, on average, much cheaper than credit cards, especially in terms of interest rates. Credit card interest rates average around 17-19%p.a., while unsecured personal loans can start from a low of 4.69%p.a. (unsecured, base rate. Comparison rate will be much larger and will vary.) Once you have a credit card, you can access credit anywhere at any time. All you need is your card or your number (if you are buying online.) You can even link your credit card to third party services, like a payment gateway, e.g., PayPal. If you want to take advantage of “flash sales” or pay for something in a crisis, a card is always there. You will have to apply for a personal loan like any other kind of loan product. Your approval is dependent on your credit history, employment and other factors that gauge your ability to pay back the loan.

Credit card interest kicks in later than loans

Another aspect of credit cards that win out over loans is that many credit cards offer an interest free period, usually about 55 days. If you pay back the balance of your purchase within that window, you will not incur any interest (apart from annual fees or transaction charges, if applicable.) However, a personal loan will charge you a set amount each month, until your balance is zero. You will also be able to make extra repayments (this may depend on your lender’s rules, however.) Credit cards also offer rewards programs; however you are usually paying for that with higher annual fees or interest rates.

Australians owe $32 billion on their credit cards. That’s $4,300 for every person – not cardholder, but person – in Australia. According to ING Direct’s Household Wellbeing Index, only one in five Australians hold a personal loan debt of some kind. Only 15% of households don’t own or use a credit card. Which product suits you best? That’s up to you and your goals. Speak to a financial professional, or use a credit card or personal loan comparison service.

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