What costs more? A large personal loan or a credit card?

To answer to this question, it comes down to a number of factors and will depend on your unique situation.

The factors include:

What interest rate is applicable to the credit card and personal loan

Make sure you find out if the annual interest rate is variable (can change) or is fixed. Also, for credit cards, some may have an introductory lower rate to attract you, but it then may increase after a certain period, sometimes as short as 6 months.

What fees are applicable to the credit card and personal loan

Obtain the full set up costs, and remember for credit cards there is usually an annual fee to be added each year. Make sure you understand the credit card interest monthly charges, how much the late payment fees are on both, and if the personal loan has any monthly or early repayment fees. (Note: At Fair Go Finance we have no early repayment fees!)

How long you take to pay it back

For credit cards you will need to be disciplined to clear your debt, otherwise if you keep it for longer than you would have done with a personal loan, this means you will end up paying more interest.

What you are needing the credit card or personal loan for

Comparing a credit card to a personal loan is a bit like comparing an apple to an orange, because they really are designed for different uses. Let’s review what they are designed for.


What is a credit card designed for?

Credit cards ideally are for people who may not have enough money in their account to purchase or pay for something now, but know they will be able to as soon as they receive their pay.

Credit cards can help with paying for a small things like a burger or larger things such as utility bills, and the benefit is, as long as you pay the money back within the grace period from 25 – 40 days then you won’t need to pay any extra. However, if you don’t pay the full amount back, you will be charged interest on top of the amount owing.

Also, credit cards are an ongoing credit facility, so if you have a limit of $5000, you can use it over and over up to this limit.


What is a personal loan designed for?

A personal loan is money borrowed from a lender to help pay for a personal expense (such as a holiday, housing bond, medical expense, consolidate debts etc) which is then paid back over a set length of time with set repayments.

Personal loans cannot be re-used, so you borrow the money once, and then you simply repay it.

So knowing each of their purposes, you should be forming an idea of firstly what is more suited to your specific need. 

Next, to help you work out which way to go, answer the following 2 questions:

  1. What is my credit like? Would I be eligible for a credit card or personal loan?

Your credit score and history will greatly impact your ability to obtain a credit card or personal loan.

If you have very good credit, then obtaining either should be achievable. If you have bad credit then generally a credit card will be harder to get than a personal loan because it does not have structured repayments and can more easily get out of control.

For personal loans, as they are designed to be repaid over a set term, there are lenders such as ourselves who are able to consider both good credit customers and bad credit customers.

If you have good credit then you will be rewarded with a lower interest rate. If you have bad credit, we may still be able to assist you with a loan, take a look at our bad credit loans page.

OUTCOME: Before you consider the costs, find out what your credit score is to get an understanding of what you’re eligible for.  

credit card or personal loan

2. Do I ever overspend?

If you’re easily tempted to spend money, then choosing a credit card over a personal loan could cost you far more than you first thought.

Although there are 0% purchase rate credit cards out there which sound appealing, if you splash out and don’t clear the debt within the interest free period, you will be hit with interest charges and potentially get into a higher level of debt.

OUTCOME: Be realistic as to the type of spender you are. If you splash out regularly, credit cards can be too much of a temptation and could cost you more in the long run.


So what really costs more?

The bottom line is, there are examples when a credit card can be cheaper overall (if managed by a very diligent saver and the debt is repaid and the limit is never redrawn) and many examples when a personal loan is the cheapest option.

There are definitely more risks with using a credit card because you can easily dig yourself into more debt if you’re not careful, where this is not possible with a personal loan.

Ultimately you need to consider each option to know which one suits you best, but as a personal loan provider we see many examples of customers who start with a credit card, but then have had to repay it with a debt consolidation loan with us, due to overspending and finances getting out of control.

Why not also read our blog “Why choose a personal loan instead of a credit card” before you decide! Good luck!

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Are you eligible to apply?


It can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

Check your options before you borrow:
For more information about other options for managing bills and debts, ring 1800 007 007 from anywhere in Australia to talk to a free and independent financial counsellor.

Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan.
If you are on government benefits, ask if you can receive an advance from Centrelink.

The Australian Government’s MoneySmart Website shows you how small amount loans work and suggests other options that may help you.

* This statement is an Australian Government requirement under the National Consumer Credit Protection Act 2009.