Should I get a personal loan or a credit card?

Choosing between a personal loan and a credit card means weighing up a few key factors. These include fees, rates and flexibility.

What is a personal loan?

A personal loan is the traditional form of credit for paying off a large purchase, meeting a large expense or consolidating and repaying debts. When you apply and are approved for a personal, the lender will usually deposit the entire amount in your account, which you can then use to make your purchase.

A personal loan can be secured against a valuable possession, like a car, or unsecured. If the loan is secured, the lender can repossess the security if the borrower defaults on repayments.

What is a credit card?

A credit card is a portable, permanent line of credit that can be drawn down when required. A credit card is used at the point of sale to complete a purchase. That purchase must then be repaid, with monthly payments or, preferably within the interest free period which most credit cards feature.

What are the costs of personal loans and credit cards?

Generally a personal loan has a lower rate of interest than a credit card. Secured personal loans, like a car loan, will usually feature a lower rate than an unsecured loan. Personal loans often charge an up-front application fee, which is often added to the loan amount. Repayments on a loan are usually fixed and sometimes there are penalties or fees for repaying early. Some loans also charge monthly fees.

A credit card is more flexible, but may have a higher rate of interest plus annual and late fees.

What are the benefits of personal loans and credit cards?

Credit cards can sit in your wallet ready for when you need some credit. Credit cards are great for making small purchases when you don’t have cash on hand. Credit cards can provide you with the security of knowing that you have some credit available if required.

Personal loans are more suited to large, one-off purchases. Personal loans are also often used as debt consolidation devices. Some people prefer the discipline of regular repayments that a personal loan offers.

How do I choose a loan or credit card that is right for me?

Once you have decided between a personal loan and a credit card, research and compare the deals that are on the market right now. There is no need for you to limit your decision to the bank or credit union that you use for your everyday banking account.

Infochoice lists hundreds of credit cards from all major Australian banks, building societies and credit unions. You can click straight through from the listing of the credit card that most appeals to you.

Browse the listings for personal loans on Infochoice here.


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