We explain how to work out whether you should get a credit card or a loan - and what you can do to minimise the cost of borrowing whichever option you go for.
Deciding whether a credit card or personal loan is the best way to borrow will largely depend on how much you want to borrow, for how long and how you want to repay the debt.
Here are your options:
1. Short term, smaller borrowing with flexible repayments = Credit card
A credit card is a more flexible way of borrowing money than most personal loans as it allows you to vary the amount you repay each month - providing you pay a set minimum amount – and clear your borrowing whenever you can afford to.
There are also a wide choice of credit cards that offer a 0% interest rate on new purchases and balance transfers - meaning you can repay on your own terms free of charge over the short term.
However, most credit cards will offer smaller credit limits than you’d be able to borrow via a personal loan. This means a credit card may not be ideal if you need to borrow a significant amount.
For help finding the best credit card for your circumstances take a look at our Action Plan: How to Get the Best Credit Card, and compare your options using our credit card comparison.
2. Long term, larger borrowing with fixed repayment terms = Personal loan
If you are looking to borrow a larger amount and spread your repayments over several years then a personal loan may be more attractive option.
Most personal loans set a fixed interest rate for the duration of the loan as well as a fixed repayment amount each month so you can budget for what you’ll have to repay and know exactly when it will finish.
Choosing a personal loan over a credit card may also be a better choice if you want to repay the same amount each month.
You should go for the lowest loan rate possible and spread your borrowing over the shortest term to minimise interest charges.
Read our article: 9 Top Tips for the Best Deal on a Personal Loan and use our loan rates comparison to find the cheapest loan to fund your borrowing.
You can also take a look at our guide: Loans or Credit Cards - Which Makes for Better Borrowing? for more information about your options.
