Personal Loans vs. Credit Cards

Differences between personal loans and credit cards

Repayment: With credit cards, your monthly payment depends on how much credit you’re using. If you pay your statement balance in full by the due date each month, you can avoid interest charges. Personal loans have a fixed repayment schedule through monthly installments. You know beforehand how much your monthly payment will be and how long your repayment term will last.

Access to funds: When a lender approves your personal loan application, they deposit the payout directly into your account or send you a check. With a credit card, you access a revolving credit to make purchases.

Interest charges: Both credit cards and personal loans charge interest on the amount borrowed. Personal loan interest rates may be lower than credit card APRs, but you can typically avoid credit card interest on purchases by paying off your statement balance in full by the due date each month.

Fees: For personal loans, some lenders may charge early payment penalties or origination fees. You may have to pay late fees if you don’t make your monthly payment on time. Credit cards may also charge annual fees, late payment fees, returned payment fees, foreign transaction fees, over-limit fees, balance transfer fees and cash advance fees, depending on the card and how you use it.

Rewards: Some credit cards let you earn rewards, such as points, miles or cash back, on purchases, while personal loans do not.

When should you consider a personal loan?

A personal loan could make sense for larger one-time purchases, such as a home repair. Personal loans can also be used for debt consolidation. Using a personal loan for debt consolidation could be helpful if you qualify for a lower interest rate than that of your current debts.

When should you consider a credit card?

Credit cards can simplify everyday expenses like groceries and gas. They can be a convenient way to make regular purchases, particularly if you can pay your balance in full each month.

Credit cards can also be the right tool for a large purchase or debt consolidation. Some credit cards offer a low introductory APR on balance transfers or purchases for a limited period. A low intro APR card can allow you to pay off high-interest debt or pay for a large purchase over time while saving on interest.

Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.

This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.