Credit Card Loan Vs Personal Loan: Which One is Better?

Created on 07 May 2022

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Updated on 02 Jun 2023

Credit Card Loan Vs Personal Loan

Both of them are loans. Both of them are meant to suck you dry. 

Alex and Joy are two individuals in need of funds due to different circumstances. While Alex needs funds to pay electricity bills for the month, Joy is looking for an option to arrange funds for his daughter's master's degree in a top-rated institution.

Alex and Joy are familiar with two sources to arrange funds: Credit card loans and Personal loans. However, the actual confusion is deciding which one to choose.

Like Alex or Joy, if you find yourself standing in a similar situation, you are at the right place. While we may not be aware of your situation precisely, we can surely help you make wise decisions. Let's see if you need a credit card or a personal loan.

What is a personal loan?

A personal loan is a loan to meet expenses such as medical payments, children's education, or even buying yourself a dream house. It is an instalment loan, meaning you can choose to pay fixed monthly instalments along with interest. Personal loans are unsecured loans provided by various financial institutions to individuals.

These are called unsecured loans because you do not need collateral security to apply for these loans. However, personal loans are granted based on your creditworthiness, and high credit scores ensure getting a personal loan at lower interest rates.


  • Easier to repay; highly flexible.

  • An excellent credit score can help you avail these loans at low-interest rates.

  • Minimum documents are required to approve these loans.

  • Highly versatile

  • Easier to manage.


  • Higher interest rates in cases of low credit score.

  • Increased penalties on non-repayment of instalments.

  • Can increase your debt burden.

What is a credit card loan?

Do you have a credit card and need emergency cash to meet personal or business expenses? Well, credit cards come to your rescue. Credit card loans are pre-approved and unsecured loans used to meet expenses like restaurant bills, grocery shopping, movie tickets, etc. 

However, not all people carrying credit cards can enjoy this facility. Wondering why? This is because the loans get approved on a basis like credit history, credit score, and repayment records. 


  • Increases your purchasing power.

  • Rewards and cashback are given for using the cards frequently.

  • Assists in creating a credit record.

  • High convenient

  • Helps in budgeting.


  • Leads to overspending.

  • High charges and interests on unpaid dues.

  • Missed payments affect credit scores negatively.

  • Involves other expenses such as annual maintenance charges.

Let us learn about the differences in detail.


Various credit unions and banks provide the facility credit cards, and you can start utilising your cards once they are activated.

Banks and credit unions are traditional sources of acquiring personal loans. Presently, online and specialised vendors are good sources to apply for personal loans without any hassle. You are good to go as long as you have your mobile phone and all the necessary documents.

Application process and documentation

You don't need to provide extensive documentation to avail credit card loans as the granter already knows about your personal and financial credentials. 

However, to apply for a personal loan, you must furnish the lender with documents like PAN details, identity proof, signature proof, address proof, and bank statements for the past 6 months. The documents may vary from salaried individuals to self-employed ones depending on different banks' requirements. 


It is crucial to check your eligibility for a personal loan or credit loan to apply for the same. Obviously, to avail of a credit card loan, you need to have a credit card. Hence, only credit card holders can use the credit facility attached to their credit cards. 

And, a non-credit cardholder will only have the option to choose a personal loan no matter the number of funds he needs. 

Funds distribution

Credit card companies transfer funds directly to the seller's account when customers provide their credentials.

However, personal loans are directly disbursed to the borrower's bank accounts in a lump sum. 

Loan amount

For lesser funds requirements, credit cards are preferred. However, if you require huge funds, a personal loan may be the right option for you.

For example: if you have a credit limit of Rs 30,000, you can only spend up to this limit. If you've already withdrawn Rs 20,000 out of your limit, you can not withdraw more than Rs 10,000. 

Are you curious to know any additional charges attached to these loans? Well, keep reading.

Additional charges/expenses

As a credit cardholder, if taking credit loans, you won't have to pay any additional charges except for the interest expenses. But, it is vital to consider other costs related to credit cards, such as annual maintenance charges. 

For personal loans, you need to keep in mind expenses like:

  • Processing fee,

  • Prepayment charges,

  • Foreclosure charges,

  • Loan cancellation charges and

  • Cheque dishonour charges.

Okay, now that I am aware of the charges and expenses, what about the approval time of the loans? Is there any difference in the time taken to approve these loans?

Approval time

Generally, credit cardholders can avail of a loan on a credit card within a day/24 hours, which may vary from one bank to another. 

However, it takes three to seven working days for personal loans to get approved because it involves verifying the documents. The approval time may vary from online lenders to traditional banks. 

Repayment of the loan amount

You can repay credit card loans in monthly payments, but you have a relatively shorter time to repay the same. These are generally taken to meet short-term emergencies, and you must pay your dues before the due dates.

However, you have a longer time to repay personal loans, and it can vary from 1 year to 5 years, depending upon the lender's conditions.


There is no single option "right" for all when it comes to choosing the types of loans. While a credit card loan may suit your needs, it may not be a perfect choice for someone else. Several factors affect one's borrowing decisions, such as eligibility, amount of funds needed, tenure of loan, and others. Hence, it can not be said that personal loans are better than credit card loans and vice-versa. 

Frequently Asked Questions

1. Are personal loans better than credit cards?

Both personal and credit card loans have pros, cons, and features. Hence, you should choose one depending upon your eligibility, loan tenure, repayment terms, interest charges and other factors mentioned above. 

2. Do personal loans affect the credit score of an individual?

Taking personal loans does not affect your credit score. However, if you fail to make timely payments along with interest charges, it can negatively affect your credit score. 

3. Should I take a personal loan to pay off credit card loans?

If you're finding it difficult to repay a credit card loan, take a personal loan, as personal loans usually come with lower interest rates than credit cards. However, you must make sure to manage it well.

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Yashika Katyal

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Yashika is a freelance content writer who loves to write about business, finance and entrepreneurship. She is a management student and focuses on connecting financial businesses to their target audience through her words.

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