Overview

A personal loan gives you a one-time lump sum repaid over a set term with fixed (or rarely, variable) monthly payments. Credit cards create a revolving line of credit with variable APRs and a minimum monthly payment that can extend debt indefinitely. The Consumer Financial Protection Bureau explains how these products differ and what to watch for (consumerfinance.gov).

In my 15 years advising clients, I’ve seen personal loans help people lower total interest, simplify payments, and stop the “minimum-payment” trap that credit cards can create.

When a personal loan usually makes more sense

When a credit card can be better

  • Short-term borrowing with a plan to pay the balance in full during a grace period (avoids interest).
  • When you need ongoing access to credit for small, irregular expenses.
  • For rewards or 0% introductory APR balance-transfer offers — but compare transfer fees and the post‑intro APR.

Comparing costs and features

  • APR and fees: Credit-card APRs are often higher and variable; personal loans usually offer lower fixed APRs for borrowers with good credit. Always include origination fees and any balance‑transfer fees when comparing. For details on origination and fees, see: https://finhelp.io/glossary/personal-loan-fees-and-origination-costs-what-youre-actually-paying/
  • Payment structure: Personal loans amortize principal and interest so your balance declines with each payment; credit cards allow revolving balances and usually do not amortize unless you pay more than the minimum.
  • Credit score effects: A personal loan is a new installment account; it can lower your utilization ratio (helpful) but a hard inquiry and new account may temporarily lower your score.

Quick decision checklist (use before you apply)

  1. Add up total cost: calculate expected interest + fees across the full loan or remaining card balances.
  2. Compare APRs on an apples‑to‑apples basis (include origination or transfer fees).
  3. Confirm monthly payment fits your budget and you can avoid new credit-card balances.
  4. Check eligibility: better credit scores get better rates; estimate offers from multiple lenders.

Real-world example

A borrower had $12,000 across three cards with APRs of 21–25%. A 36‑month personal loan at 12% (2% origination fee) produced a lower monthly payment and saved roughly $2,400 in interest over three years after fees — and created a fixed payoff date. Your results will vary; always run the math.

How to apply and eligibility basics

Lenders review income, debt‑to‑income ratio, credit score, and recent credit inquiries. Many banks and online lenders prequalify with a soft pull, which doesn’t affect your score. For thin‑file borrowers, some lenders consider alternatives like bank statements; shop multiple offers to improve chances.

Common mistakes to avoid

  • Ignoring fees: high origination fees or prepayment penalties can erase expected savings.
  • Consolidating and then continuing to use credit cards: this can increase total debt.
  • Treating a personal loan as an excuse for nonessential spending.

Brief FAQs

  • Can I use a personal loan for any purpose? Yes—most are unsecured and can be used for medical bills, home repairs, debt consolidation, and more. (Consumer Financial Protection Bureau)
  • Is interest on a personal loan tax deductible? Generally no for personal expenses. If the loan is used for business or investment purposes, tax rules differ; consult the IRS or a tax professional (irs.gov).

Sources and further reading

Internal resources

Professional disclaimer
This article is educational and not individualized financial or tax advice. For advice tailored to your situation, consult a qualified financial advisor or tax professional.