When is a Personal Loan more suitable than a Credit Card?

Information verified correct on September 30th, 2016
worries woman with an empty wallet

Whether you need a short-term cashflow solution or have some big ticket purchases in mind, find out when it’s better to use a credit card or a personal loan

Personal loans and credit cards are both useful sources of finance, but the right option for you will depend on what you need the money for, your ability to repay the debt and the features you’re after. While a credit card provides interest-free terms for the purposes of debt consolidation, a personal loan is better if you need cash rather than available credit. Personal loans are also suited to specific purposes such as purchasing a car or for funding a holiday.

If you’re tossing up your options between getting a credit card or a personal loan, use the following guide to help you decide which one will work best for you.

Compare credit cards vs personal loans

Rates last updated September 30th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
NAB Low Rate Credit Card
The NAB Low Rate Card offers 0% p.a. on purchases and balance transfers for 15 months. This card also comes with a low annual fee.
0% p.a. for 15 months (reverts to 13.99% p.a.) 0% p.a. for 15 months with a one off 2% balance transfer fee $59 p.a. Go to site More info
Westpac 55 Day credit card
Enjoy a balance transfer offer of 0% p.a. for 16 months, an introductory purchase rate of 1% p.a. for up to 12 months, plus a waived annual fee for the first year if applied by 11 October 2016.
1% p.a. for 12 months (reverts to 19.84% p.a.) 0% p.a. for 16 months $0 p.a. annual fee for the first year ($30 p.a. thereafter) Go to site More info
American Express Essential Credit Card
Receive a $50 credit on eligible spend and get Smartphone screen insurance combined with a no annual fee for life card. Also enjoy a 0% p.a. balance transfer rate for 12 months.
14.99% p.a. 0% p.a. for 12 months with 1% balance transfer fee $0 p.a. Go to site More info
St.George Vertigo Visa
Introductory offer of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases, plus a low annual fee.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Earn bonus Velocity Points in the first 3 months. 0% p.a. for 18 months on balance transfers.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
St.George Vertigo Platinum
A platinum card with a balance transfer offer of 0% p.a. for 18 months and an introductory purchase offer of 1% p.a. for 12 months with an annual fee waiver for the first year.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 18 months $99 p.a. Go to site More info
Westpac Low Rate Card
A no frills credit card with an introductory rate of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases.
1% p.a. for 12 months (reverts to 13.49% p.a.) 0% p.a. for 18 months $59 p.a. Go to site More info
NAB Low Fee Card
Enjoy a low introductory rate of 0% p.a. on balance transfers and purchases for 15 months.
0% p.a. for 15 months (reverts to 19.74% p.a.) 0% p.a. for 15 months with a one off 2% balance transfer fee $30 p.a. Go to site More info
Citi Qantas Signature Credit Card
Earn up to 50,000 bonus Qantas Points when you spend $2,000 or more on eligible purchases in the first 90 days. Plus, enjoy introductory interest rates on balance transfers and purchases with a discounted annual fee of $199 in the first year.
20.99% p.a. 0% p.a. for 6 months $199 p.a. annual fee for the first year ($395 p.a. thereafter) Go to site More info
ANZ First Visa Credit Card - Exclusive Offer
Take advantage of this exclusive offer and enjoy 0% p.a. for the first 12 months on balance transfers and 0% p.a. for the first 3 months on purchases.
0% p.a. for 3 months (reverts to 19.74% p.a.) 0% p.a. for 12 months $30 p.a. Go to site More info
Westpac 55 Day Platinum Credit Card
Enjoy platinum benefits offering complimentary insurances, 24/7 concierge, balance transfer offer of 0% p.a. for 16 months, purchase rate offer of 1% p.a. for 12 months with $0 annual fee for the first year if applied by 11 October 2016.
1% p.a. for 12 months (reverts to 19.84% p.a.) 0% p.a. for 16 months $0 p.a. annual fee for the first year ($90 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
ANZ Platinum Credit Card - Exclusive Offer
Receive $200 back when you spend $500 in the first 3 months. Also enjoy a $0 annual fee for the first year.
19.74% p.a. $0 p.a. annual fee for the first year ($87 p.a. thereafter) Go to site More info
HSBC Platinum Qantas Credit Card
Receive 60,000 bonus Qantas Points on eligible spend within 3 months. Enjoy access to premium benefits and complimentary insurance.
19.99% p.a. $199 p.a. Go to site More info
Virgin No Annual Fee Credit Card
No annual fee for the life of the card with $100 cashback and a 0% p.a. offer on balance transfers for 18 months. Spend criteria applies for cashback offer.
18.99% p.a. 0% p.a. for 18 months with 2% balance transfer fee $0 p.a. Go to site More info
ANZ Platinum Credit Card
Enjoy platinum card benefits with $0 annual fee in the first year and complimentary overseas travel and medical insurance.
19.74% p.a. 0% p.a. for 18 months with 3% balance transfer fee $0 p.a. annual fee for the first year ($87 p.a. thereafter) Go to site More info
Rates last updated September 30th, 2016
$
Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment
HSBC Personal Loan
A competitive fixed interest rate loan with the option to make extra repayments. Min. income $30,000
From 11.99% (fixed) 12.54% $5,000 1 to 5 years $150 Go to site More
ANZ Fixed Rate Personal Loan
A flexible loan option that lets you pay off your debt, buy a car, fix up your house or cover travel costs.
From 13.95% (fixed) 14.81% $5,000 1 to 7 years $0 Go to site More
CUA Fixed Rate Personal Loan
A competitive fixed-rate loan with flexible repayments that can help you consolidate debt or make a large purchase.
From 11.99% (fixed) 12.83% $1,000 1 to 7 years $120 Go to site More
Bank Australia Lifestyle Personal Loan
A competitive variable rate loan that gives you ten years to repay.
From 11.89% (variable) 12.94% $1,000 1 to 10 years $150 Go to site More
SocietyOne Unsecured Personal Loan
Interest rates range from 7.9% p.a. to 24.25% p.a. Comp rate from 9.58% p.a. to 27.99% p.a. depending on your credit score
From 7.9% (fixed) 9.58% $5,000 2 to 5 years 2.5% (of loan amount) Go to site More
RACQ Unsecured Loan
An unsecured personal loan that lets you borrow funds for what you need. Repay the loan on terms up to seven years.
From 13.95% (fixed) 14.52% $5,000 1 to 7 years $378 Go to site More
Latitude Personal Loans (Unsecured)
An unsecured loan designed for multiple purposes – renovating, buying a car or travelling. Funds can be in your count in as little as 24 hours.
From 13.99% (fixed) 15.2% $3,000 2 to 7 years $250 (Loans under $4000 - $140) Go to site More
Bank of Melbourne Unsecured Personal Loan
An unsecured personal loan that gives you a choice between a fixed or variable rate.
From 14.74% (variable) 15.61% $3,000 1 to 7 years $195 Go to site More
ANZ Variable Rate Personal Loan
A variable rate loan that lets you make and redraw additional repayments.
From 14.69% (variable) 15.55% $5,000 1 to 7 years $0 Go to site More
BankSA Unsecured Personal Loan
BankSA allows you to borrow up to $40,000 with your choice of a fixed or variable rate.
From 14.74% (variable) 15.61% $3,000 1 to 7 years $195 Go to site More
NAB Personal Loan Unsecured Variable Rate
A low interest rate loan with redraw facility to access money you've paid in advance.
From 13.69% (variable) 14.56% $5,000 1 to 7 years $150 Go to site More

When should I use a personal loan over a credit card?

Scenario 1

worried manJim is in debt

Jim has been living large. He owes $2,500 across two credit cards and has another $2,000 owing on a personal loan. Jim can consolidate the debt using either a credit card or a personal loan so that he has just one repayment rather than three.

Although there are personal loans suited specifically for the purposes of debt consolidation, Jim can get an interest-free balance transfer credit card for terms of up to 20 months if he applies for the St.George Vertigo Platinum Credit Card. By comparison, the CUA Fixed Rate Personal Loan offers interest rates from 11.99% p.a. for terms of up to seven years.

The credit card option includes interest-free balance transfers for as long as 20 months. Jim thinks he can pay off his debts in this time so he opts for the credit card rather than a the personal loan. If Jim wasn’t able to pay off his debt within a year, he would compare personal loans instead of balance transfer credit cards, as once the interest-free period is over on a balance transfer credit card the interest rate becomes much higher than that of a personal loan. A personal loan becomes a cost effective option for Jim if he can’t pay back the credit card by the end of the promotional term.

Compare balance transfer credit cards

Scenario 2

looking at the globeLisa’s European getaway

Lisa has been planning a trip to Europe for some time now. She’s been saving for months but still doesn’t feel like she has the cash she needs to really enjoy the experience. Lisa already has a credit card, but due to the high costs involved when using it for cash, she want’s to avoid using it if she can.

St. George is her everyday bank so she decides to take out the St. George Get Set Loan. This is an unsecured personal loan from St. George. The bank deposits the money in Lisa’s account and she can use it for whatever she likes while only paying interest (13.75% p.a.) on the funds she uses.

She chooses a personal loan over a credit card because credit cards are not designed to be used to access cash from an ATM and she will need access to cash as well as credit when she’s overseas. If Lisa were to use her St.George Amplify Platinum Visa Credit Card to make cash withdrawals in Europe, in addition to international ATM withdrawal charges, she’d be stung with the cash advance fee of 2% of each cash advance amount and all transfers or minimum of $2 and the cash advance interest rate of 20.24% p.a.

Due to cash advance charges, a personal loan is a cost effective option for Lisa when she’s on holiday. Using a personal loan, she only pays the international ATM withdrawal charges when she gets cash from the ATM.

Personal loans you can use to fund a holiday

Scenario 3

man with a new carHarry’s new wheels

Harry has just started work and wants to purchase a new car. He needs about $20,000 so he can buy a second-hand vehicle. In this instance, a car loan is a far better option for Harry than a credit card. It’s unlikely that a financial institution such as a bank will approve Harry for a limit of $20,000 considering he has just started working. However, car loans are secured loans. The vehicle is the security for the lender and can be repossessed if Harry defaults on his loan payments. Subsequently, the interest rate is lower than an unsecured personal loan and most credit card interest rates. Harry can be approved for a higher limit because the lender has an asset that they can repossess if Harry can’t make his car loan payments.

Find a personal loan you can use to buy a car

What to consider when comparing a credit card to a personal loan

  • Cash or credit? Personal loans are better if you need cash, but due to interest-free days, credit cards are ideal for making purchases with credit. Using a credit card for a cash advance (for example, at the ATM) is one of the most expensive ways to get cash. Consider the charges you’ll pay when you go to the ATM, including the cash advance fee, a higher interest rate and ATM charges. Only one interest rate applies to a personal loan regardless of how you access the funds.
  • Debt consolidation. Credit cards have a money-saving debt consolidation feature called a balance transfer. Debt consolidation balance transfers  include interest-free periods  for an extended amount of time. Debt consolidation personal loans generally provide a low rate of interest, but not as low as 0%. Balance transfer credit cards do revert to a high interest rate at the end of the promotional period, but a balance transfer credit card can save you more money than a personal loan if you can pay down your outstanding balance before the end of the interest-free  period.
  • Your ability to repay. How long do you need to repay the money you spend? Personal loans have terms of up to seven years. A credit card may be able to provide short-term savings, but once the introductory period is finished, the ongoing interest rates are higher than what you can get on a personal loan. Think about whether you can repay what you spend within the credit card promotional period, and if you can’t, a personal loan may be a more suitable option for you.

Personal loans and credit cards both have a purpose, but it’s important to know when to use which product. If you have any questions about using credit cards or personal loans, get in touch with us using the form below.

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Credit Cards Comparison

Rates last updated September 30th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
St.George Vertigo Visa
Introductory offer of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases, plus a low annual fee.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards CreditCardFinder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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