Do I need a loan or credit card?

This will depend on your personal circumstances, how much you want to borrow, how quickly you’d like the cash and what options are available to you. There’s a range of credit card and loan options for people with all kinds of credit history, so do some research to figure out what will suit you best.

8 min read
Do I need a loan or credit card?

Here’s how they compare:

  • Loan
  • Credit Card


  • Best use

    For longer-term debt where you are looking to pay off over time.
  • How quickly can you access the money?

    Some personal loans will transfer within a day (even in as little as 15 minutes).
  • Rewards and extra benefits

    Loans don’t tend to offer these.
  • Monthly payments

    The minimum monthly repayment will be fixed over the term of the loan.

Credit Card

  • Best use

    Short term debt, spending and day-to-day emergencies, usually better when paid off within a month.
  • How quickly can you access the money?

    It usually takes up to 10 working days to receive the card, but you can sometimes access an online credit account before then.
  • Rewards and extra benefits

    Some credit cards come with perks like cashback, air miles or access to discounts.
  • Monthly payments

    The minimum monthly repayment can vary, increasing and decreasing as the amount owed does.

What’s the difference between a loan and a credit card?

Loans are a form of structured lending, when a lender provides you with a set cash amount and an agreed schedule to repay it with interest. They differ from credit cards which are a form of revolving credit - with this you are provided with an agreed credit limit and can consistently borrow up to that amount even after paying it back.

How much do you need to borrow?

The amount that you need to borrow will have a big impact on your decision. If it’s a small amount of money, say less than £1000, a credit card might be better for you than a loan. Credit cards charge no interest on credit used in the time before your due date each month, so if you can pay back the amount within that time, it can be a cost-effective way of borrowing.

The interest rates do tend to be higher over time on credit cards compared to loans, so larger expenses like a car, home improvements or weddings will normally be better suited to the latter. Whilst some premium credit cards have been known to offer credit limits well into five figures, these are usually reserved for people with higher incomes and a strong credit score.

However, as we’ll get to shortly, when you plan to pay it back is crucial, and your circumstances may change. Spending £9000 on a new kitchen on a credit card might normally seem a bad idea, but if you are due a guaranteed windfall in the next month that can easily cover it, a credit card would probably be cheaper than a short term loan.

What is the money for?

It’s important to ask yourself what the money is for. Credit cards are better for paying for goods or services, but they rely on the merchant being able to process the payment through your card network (Visa, Mastercard etc). You can withdraw cash from the accounts, but this comes with fees and usually interest is charged instantly compared to the common 30-60 day grace period on purchases, so it’s normally a lot more expensive.

If you are planning to use the money to buy something in cash, a loan may be better as this will transfer the money to your current account. This is also useful if you are going abroad, as it may be cheaper to withdraw money beforehand and exchange it rather than have multiple fees for using your card.

Credit cards can offer financial protection for your purchases, under Section 75 of the Consumer Credit Act 1974. If you buy something between £100 and £30,000 with your credit card and something goes wrong, you may be able to make a claim to either the supplier or your credit card provider (learn more about how to make a Section 75 claim). Here’s more info about what to buy and what not to buy with a credit card.

Is a loan or credit card cheaper?

Confusingly there is no straightforward answer to this question. Loans typically have lower interest rates over a sustained period of time, which could be even lower if you secure them against your property.

How quickly you are looking to pay back the money is crucial, because many credit cards offer no interest on purchases in the first 30-60 days. Some cards will extend that offer as far as 24 months, making them even cheaper compared to a loan which will have guaranteed interest charges.

Balance transfer credit cards are also common, offering a set period of time of interest-free repayments if you transfer over existing debt.

Even if you can’t get a balance transfer card or interest-free introductory period, if you pay back your balance in full, before your due date each month, you can avoid paying interest altogether. So if you are financially disciplined and can pay the money back within the timeframe, a credit card can certainly be a more cost-effective solution.

If you can’t though, a loan might be better. With credit cards it’s easy to be tempted into further spending and it can also take a very long time to pay off if you’re only making the minimum payment, so a loan may be a better way of consolidating your payments as part of a plan to pay off your debt.

How quickly do you need it?

You can often get access to your cash much quicker with a personal loan than a credit card. Whilst both will take similar amounts of time to apply, a credit card needs to be issued and sent to your address, which usually takes around 10 working days.

Personal loans, however, can often transfer the money to you on the same day (sometimes in as little as 15 minutes). So if you need the money quickly, a personal loan could be the better option.

When will you pay it back?

We’ve touched on this already, but how quickly you can pay the amount back is important. If you can find an interest-free option with a credit card and can pay the amount or the majority of it back during that time frame, it’s potentially the cheaper option.

Loans will be cheaper if paid off within a shorter period of time as you’ll pay less interest, but it will mean higher payments each month. The good news is they are usually flexible in setting an affordable figure for your monthly payments around your budgeting. Remember though you will need to pay this set amount every month for the duration of the loan term, so be mindful of your future cash flow as well as your current situation.

Will either affect my credit score?

Applying for either a loan or a credit card will potentially cause your credit score to drop in the short term. The amount of applications you make will show up on your credit file, and lenders can often interpret multiple applications as a sign of financial instability. Experian recommends no more than once every three months. Before deciding on which to use, it’s a good call to use soft check facilities, which check for your eligibility, as these do not show up on your credit file.

If you are accepted for either, and then pay your repayments in full and on time, it can then help your credit score to improve. Fulfilling your commitments will positively improve your credit history, as this demonstrates to lenders that you are trustworthy to lend to.

And by the same logic, if you don’t do this your score will drop. Missed payments, defaults and CCJs are all stages of failing to repay the money you have borrowed, and all have different negative impacts on your score.

Are there any extra benefits of either?

Some credit cards come with perks, which can vary from extra points on a retailer’s loyalty scheme, to air miles and even cashback. Loans very rarely offer these same added benefits.

Which is easier to apply for?

Both credit cards and personal loans can be fairly straightforward to apply for. Applications for our credit card and loans take a matter of minutes, and if you look to use price comparison websites these typically give you a decision within a similar timeframe. Secured loans can take longer to apply due to the paperwork involved.

Am I eligible for a loan or a credit card?

There is no real distinction between being eligible for a loan or a credit card. Lenders’ criteria can vary substantially, so what one issuer might want for a £3,000 loan, might be different from what another will want for a credit card with the same limit. You could quite easily meet one lender’s criteria, but not the other.

Again, the best thing to do in this instance is shop around as much as possible and use soft checking facilities.

In conclusion

Borrowing money is a highly personal thing, and as we’ve explained there is no hard or fast answer for each. You will need to weigh up how much you need, how you intend to use the money, how long you want to take paying it back and your own personal history with finances before making a decision.

Once you’ve become clearer on these personal circumstances, do plenty of research into interest rates and the options out there. That way you’ll be able to find a deal which is the best for you financially.