3 Times a Credit Card Is Better Than a Personal Loan

There are a lot of circumstances where it can make sense to use a personal loan if you have to borrow for a purchase rather than a credit card. However, in other situations, a credit card is actually the better choice. Here are three circumstances when using a credit card would likely be the right move. 

1. If you can qualify for a 0% APR offer

Personal loans generally have lower interest rates than credit cards. In fact, as of August 2023, the average personal loan interest rate was 12.17% -- compared to the average credit card interest rate of 21.19%. Personal loans are also more predictable in terms of when you'll repay your balance and how much it will cost you over time. 

However, credit cards sometimes offer a special promotional APR for new purchases. For example, the best 0% intro APR cards may allow you to pay no interest for as long as 15 months. 

If you will be able to fully repay the amount you're borrowing before a 0% APR offer expires, you will end up better off using a credit card than a personal loan. No personal loans offer zero interest, so they'll be more expensive in this case.

2. If you want access to a line of credit

When you take out a personal loan, you are able to borrow a set amount of money upfront that is delivered in a lump sum. Once you've borrowed the money, you work on paying it back -- but you can't then borrow more if you need additional cash, even if you've paid down most of your loan balance; you'd need to reapply for another loan.

With a credit card, on the other hand, you have access to a line of credit that you can use at any time. For example, you might have a $5,000 credit limit. You can borrow up to $5,000 whenever you need to, and as you pay back what you've borrowed, you gain access to that credit again.

So, if you want to have credit available to access for emergencies or big purchases and you want flexibility in when and how you borrow, a credit card is the right choice rather than a personal loan. It's better to have an emergency fund for surprise expenses and, when possible, to save up cash for big purchases. A credit card can be a decent backup though, as it is better to use a card rather than having to opt for a more expensive alternative like a payday loan if something comes up that you don't have cash to cover. 

3. If you only need to borrow a small amount of money 

Most personal loan lenders have minimum borrowing limits. For example, you might have to borrow a minimum of $5,000 with some personal loan lenders (such as LightStream). If you only need to borrow a few hundred dollars, it probably would not make sense to get a personal loan for so much more than you need. Instead, you could use a credit card, charge the small amount you need to borrow, and work on paying it back ASAP. 

In any of these situations, a credit card is a better choice. Think about your goals for borrowing, decide if any of these circumstances apply to you and, if so, consider opening a new credit card for your purchase -- or charge the item on a card you currently have if you're happy with the card's terms.