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Should I get a credit card or a loan?


Both are ways of spending money that isn’t really yours. But which option is best? Let’s find out together.

A hand holding a credit card

So you need some cash and you need it now. It might be for a car, some home improvement, or a holiday.

Whatever the reason, the two most common ways to get said cash are with a credit card or a personal loan. 

But which is best for you?

Before you start | When is a credit card best? | When is a personal loan best? | Your credit history

Before you start

Ask yourself two questions before you set out:

  • How much do I need to borrow?

  • How much can I afford to repay each month?

This will give you a rough idea of how quickly you’d be able to pay it off.

Whether a credit card or loan is best for you will largely depend on how much you want to borrow, and the period of time it’ll take to pay it off.

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When is a credit card best?

If you’re borrowing a relatively small amount – up to about £5,000 – credit cards are usually a better option.

This is because you can pick up credit cards that have an interest-free introductory rate for a certain amount of time.

These periods of 0% interest make them a better choice for smaller borrowing.

A personal loan for the same amount would require interest to be paid from day one.

As tempting as an interest-free period may be, be aware that once it ends, or if you miss a payment, you’ll start being charged a higher rate of interest.

If you’re a reliable borrower, you could also be eligible for rewards like cashback, in-store advantage points or air miles.

You’d be hard pushed to find a personal loan that can boast similar rewards.

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Woman using a calculator


When is a loan best?

Credit cards tend to have an upper limit on how much you can borrow.

For anything over £5,000, a personal loan might be more your cup of tea.

Personal loans tend to have lower interest rates than credit cards, not including any 0% introductory period.

So if your planned repayment time is longer than the amount of time you’d get with an interest-free credit card, opting for a loan might be more cost-effective.

With an unsecured personal loan, there tend to be fewer pitfalls than with credit cards.

A credit card has more risks that you could be slapped with extra charges if you use it to take cash out or use it abroad.

With a loan, the money’s yours to do with as you please.

The trick is to weigh up your options and see which is best for your finances.

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Your credit history

Most loans and credit cards base interest on representative APR – that means the amount of interest that 51% of its customers are able to get.

This means that you’re not guaranteed the interest rates advertised. Your credit history will play an important part in defining:

  • your interest rate

  • your borrow limit

  • introductory period

So you might decide to take advantage of a lengthy 0% introductory rate, only to find out that your credit rating has reduced the length of the interest-free period.

If you want to get an idea of how likely you are to be accepted for a credit card without it leaving a mark on your credit score, take a look at our credit card matcher tool.

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