Personal Loan vs. Credit Card

8 Min Read | Published: December 2, 2025 

A couple in their 30s or 40s looking at bills or estimates.

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Personal loan vs. credit card: Learn the key differences in repayment terms and rates to decide if a personal loan or a credit card fits you better.

At-A-Glance

Personal loans often help finance larger expenses, and credit cards work well for everyday spending, but both help you borrow money.
A personal loan gives you one chunk of cash to pay back in fixed payments over a set period, which could make budgeting easier if you have a steady income.
Credit cards let you borrow, repay, and earn rewards on everyday transactions, but keeping balances low and making your monthly minimum payments are crucial.

When high-interest debt builds up or a big bill must be paid quickly, you might find yourself wondering if a personal loan or a credit card makes more sense. Both can give you some breathing room, but they work in different ways. A personal loan gives you a set amount to pay back over time, while a credit card keeps things more flexible so you can borrow as you need it.

Let’s break down how each option works and when one might be the better fit over the other.

How Personal Loans Work

Personal loans can come in handy when you’re trying to finance big expenses like medical bills or home renovations, or when you’re trying to consolidate and crush other debts. The process involves borrowing a lump sum up front and paying it back little by little on a consistent monthly schedule. The interest rate is typically fixed, but exact rates often depend on your credit, with higher scores usually translating to lower interest rates and more flexible terms. translating to lower interest rates and more flexible terms.

When to Use a Personal Loan

If your paycheck is reliable and your budget is in a good place, a personal loan can be a smart way to handle a big expense without draining your savings. It’s really about having a clear plan for how much you need and when you’ll pay it off.

Here are some scenarios where a personal loan can be a solid choice:

Paying off high-interest debts and rolling them into a new loan with one simple payment
Covering a major home upgrade that you’ve been putting off
Handling unexpected medical or emergency repair expenses
Funding big life moments, like a wedding or a once-in-a-lifetime trip, without running up high-interest credit card debt

Pros and Cons of Personal Loans

	Pros	Cons
	Getting money up front can be convenient for big expenses or paying off debt	You’re typically locked into steady payments even if your income changes
	Monthly payments usually stay the same, which can make planning easier	Not always the best fit for smaller or ongoing purchases
	Fixed rates can mean fewer surprises down the line	Some lenders might charge fees if you pay it off early
	Paying on time could help your credit score make positive strides	Missed or late payments usually mean setbacks for your credit standing

How Credit Cards Work

Credit cards are great for everyday spending, especially since you can earn rewards or cash back on the things you’re already buying. They can also create a stronger layer of fraud protection compared to debit cards, since credit cards typically limit your liability on unauthorized purchases. But you’re obligated to make a minimum payment each month, and if you carry a balance, you’ll generally be charged interest. Paying your statement balance in full and on time helps you avoid interest charges.

When to Use a Credit Card

A credit card can be an easy, flexible way to pay for everyday expenses while earning rewards and keeping your money safe. A credit card might not be the best fit if you’re already juggling balances you can’t pay off or are tempted to overspend when credit’s on hand. It can come down to gauging when credit works for you, not against you.

Here are a few instances when pulling out a credit card may make sense:

For smaller, routine transactions that you can pay off fast, like groceries, gas, or streaming services
When you want quick, tap-to-pay convenience with mobile or contactless payments
If you’re buying big-ticket items like a laptop or fridge and want extra perks, like coverage that refunds you if the price drops or protection if something goes wrong
For booking travel, since many cards come with travel rewards plus built-in trip coverage for delays, lost luggage, and beyond

Earn 5X Membership Rewards® points on flights and prepaid hotels booked through Amex Travel™ Terms and points cap apply.

Pros and Cons of Credit Cards

	Pros	Cons
	Pretty flexible since you can borrow, repay, and borrow again within your limit	Interest rates may be higher than you expect or even rise month to month
	Convenient for everyday spending and online shopping	Carrying a balance might get expensive over time
	You might earn rewards, cash back, or points as you swipe	Overspending might be easy if you’re not tracking your purchases
	Paying in full each month could help you avoid interest and build credit	Missing payments could create negative consequences for your credit score

Personal Loans vs. Credit Cards

This chart can help you decide whether a personal loan or a credit card is the best fit for your wallet.

	Personal Loan	Credit Card
Borrowing style	Lump sum	Revolving credit line
Repayment	Fixed monthly payments	Monthly minimums depend on your spending during each billing cycle
Interest Rates	Usually fixed	Usually variable
Ideal for	Larger, longer-term expenses	Everyday or short-term spending
Credit impact	Could improve with on-time payments and controlled spending. But and missing payments, paying late, or defaulting could set your credit back.	Could improve with responsible use, low balances, and on-time payments. Could suffer setbacks from high balances or missed or late payments.

Frequently Asked Questions

It really depends on what you’re trying to do. A personal loan may make more sense for larger expenses you want to pay off over time, since it comes with predictable payments and a set payoff date. A credit card could be better if you want to make smaller, ongoing purchases, especially when you’re able to pay your balance in full each month.

It varies by lender, but most look for good credit, typically around 670 or higher.¹ Your income and debt-to-income ratio can also play a big role, so if you have a steady paycheck and manageable debt, your approval odds may be more likely, even if your score isn’t perfect.

Absolutely. Many people use both to manage different needs. You might take out a personal loan to wipe out high-interest debt, then use a credit card for everyday purchases or rewards. Some people even have both to add a little diversity to their credit mix, which lenders typically appreciate.

Lines of credit can work like credit cards, but the account doesn’t have to be attached to a card. You can borrow what you need, repay it, and borrow again up to your limit, usually at a lower rate than a traditional credit card. To learn more, check out our line of credit vs. credit card breakdown.

The Takeaway

At the end of the day, since both personal loans and credit cards can come in handy, it often just depends on why you need them. If you prefer steady payments and a clear timeline for paying off your debt, a personal loan can work, but credit cards may be better for flexible everyday spending that earns rewards. You can explore American Express^® Personal Loans and Rewards Credit Cards to find a good fit for your needs.

¹ “670 Credit Score: Is it Good or Bad?,” Experian

SHARE

Liv Gillespie is a Philadelphia-based writer with a double M.A. in English Linguistics & Literature and Secondary Education. Her work focuses on personal finance.

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

A man and woman seated at a table, engaged with a laptop, discussing personal loan options together.

How Can You Use an American Express® Personal Loan?

An American Express® Personal Loan provides financing for Card Members. Gain access to the funds that you need with competitive rates.

A woman on her computer researching how to pay off her credit card debt

How to Pay Off Credit Card Debt

Explore how to choose a debt reduction approach to help pay off your credit card debt.

Man reviewing paperwork concerning debt settlement while sitting on couch

What Is Debt Settlement?

Debt settlement can help you reduce debt. Learn how it works, how to negotiate debt settlement yourself, and the impact it could have on your credit score.

The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.