Credit Card vs Personal Loan: Which Is Better for Borrowing in the UK?

When you need to borrow money, choosing between a credit card and a personal loan can be tricky. Both allow you to access funds — but they work very differently and suit different financial situations.

In this guide, we’ll compare credit cards and loans side by side for UK borrowers. Whether you're looking to spread the cost of a large purchase or consolidate debt, understanding the costs, risks, and repayment terms will help you make a more informed financial decision.

Key Differences at a Glance

Before we go into detail, here’s what sets credit cards and personal loans apart:

• Credit cards offer revolving credit with flexible repayments and are ideal for short-term or smaller borrowing.

• Personal loans provide a lump sum upfront with fixed monthly repayments, making them better for large or longer-term borrowing.

What Is a Credit Card?

A credit card lets you borrow up to a pre-approved limit. You can spend, repay, and spend again — provided you stay within the limit. Credit cards offer:

• Interest-free periods on purchases (typically up to 56 days)

• Optional balance transfer or money transfer features

• Flexible repayments (minimum monthly required)

• Some offer 0% interest deals for a fixed time

Pros of Using a Credit Card

• Interest-free if paid off in full each month

• Offers payment protection under Section 75 of the Consumer Credit Act (for purchases £100–£30,000)

• Can earn rewards or cashback

• Easier to access than a loan

• Good for improving credit score when used responsibly

Cons of Using a Credit Card

• High APRs if not repaid in full

• Minimum payments prolong debt

• Temptation to overspend

• Credit limit may be too low for larger borrowing needs

Read our guide on: What is APR?

What Is a Personal Loan?

A personal loan gives you a lump sum of money that you repay in fixed monthly instalments over an agreed term — typically 1 to 7 years.

Loans usually come with:

• Fixed interest rates

• Predictable repayment amounts

• Higher borrowing limits than most credit cards

• No spending flexibility — you receive all the money upfront

Pros of Using a Loan

• Fixed interest and repayment schedule

• Higher borrowing limits (often up to £25,000)

• Suitable for planned expenses (e.g. car purchase, home improvements)

• Cheaper than credit cards for long-term borrowing

Cons of Using a Loan

• You start paying interest immediately

• Early repayment fees may apply

• Harder to qualify with poor credit

• Less flexibility — you must borrow and repay the full amount

Read our guide on: Understanding Personal Loans: A Beginner’s Guide

Read our guide on: How to Get a Loan with Poor Credit

When to Choose a Credit Card

A credit card might be the better option if:

• You’re borrowing a small amount (under £5,000)

• You can repay quickly or within a 0% interest period

• You want purchase protection

• You need flexibility rather than a fixed schedule

• You're looking to build credit for future borrowing

Example Scenario:

Ben wants to buy a new washing machine for £600. He qualifies for a 0% purchase credit card for 12 months. He sets a reminder to repay the full balance before the interest kicks in. Result? He borrows interest-free and avoids taking out a loan.

When to Choose a Personal Loan

A loan may be the smarter choice if:

• You're borrowing a larger amount (£5,000–£25,000)

• You want fixed, predictable repayments

• You’re consolidating multiple debts into one

• You need the money upfront for a one-off expense

• You want to avoid ongoing revolving credit

Example Scenario:

Sarah is renovating her kitchen and needs £10,000. A personal loan over 5 years at 6% APR offers a fixed monthly cost and a clear end date — unlike a credit card with potential high interest and no payoff schedule.

Read our guide on: Cheapest Ways to Consolidate Debt in the UK

How Do Interest Rates Compare?

Credit Card APR:

• Standard APRs range from 20%–35%

• 0% introductory offers can last 12–24 months

• After intro periods, rates jump significantly

Personal Loan APR:

• Best rates are from 6%–9% for £7,500–£15,000

• Higher or lower borrowing amounts often attract worse rates

• Rates depend on credit score and income

Note: Always compare the representative APR and check if you’re eligible before applying. You can use an eligibility checker to avoid damaging your credit score.

Read our guide on: Can You Get a Credit Card with Bad Credit

Unique Tip: Use a Credit Card as a Short-Term Loan — Then Switch

One often-overlooked strategy is to:

1. Use a 0% purchase credit card for the initial borrowing

2. Near the end of the 0% period, transfer the balance to a 0% balance transfer card

3. Keep track of when interest kicks in and repeat if needed

This rolling method can help you borrow for free for up to 3–4 years, if used with discipline and planning. It’s not for everyone, but savvy borrowers use this technique to avoid interest — just don’t miss a payment or you’ll lose the 0% deal.

Factors to Consider Before Applying

1. How much do you need to borrow?

   • Under £5,000: Credit card may be better

   • Over £5,000: Loan often cheaper long term

   
   

2. How long will you take to repay?

   • Short term: Credit card with 0% intro offer

   • Long term: Fixed-rate loan

     
     

3. How disciplined are you with repayments?

   • Credit cards require self-control

   • Loans force fixed payments

     
     

4. Do you want purchase protection?

   • Only credit cards offer Section 75 protection

     
     

5. What’s your credit score?

   • Poor score? Consider improving it first or use a soft-check tool before applying

     
     

Frequently Asked Questions (FAQs)

Can I get both a loan and a credit card?

Yes — but lenders may assess your total credit exposure. Applying for multiple products in a short time can affect your credit score.

Will using a credit card hurt my credit score?

Not if used responsibly. Paying on time and staying under your limit may improve your credit score over time.

Can I pay off a loan early?

Yes, but some lenders charge early repayment penalties. Always check the terms before signing up.

Do I need a good credit score to get a 0% credit card?

Generally, yes. 0% offers are usually reserved for those with good to excellent credit histories.

Are credit cards or loans safer?

It depends. Credit cards offer fraud protection and purchase cover, but they also carry higher risk of long-term debt if misused. Loans provide structure and stability but lack flexibility.

Final Thoughts

Choosing between a credit card and a personal loan depends on your financial situation, borrowing amount, and how disciplined you are with repayments. If you're confident you can clear your balance during a 0% deal, credit cards are a flexible and cost-effective solution. If you need certainty and structure, a personal loan may suit you better.

Always compare the total cost of borrowing, factor in fees and penalties, and only borrow what you can afford to repay. Used wisely, either option can support your goals — but misuse can lead to expensive debt.

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