Personal loans vs credit cards - which packs more borrowing punch?

There’s been a debate in the banking world for some time about whether a personal loan or a credit card is the better product for borrowing or paying down debt.

Still unresolved, we’ve decided to put personal loans and credit cards back in the ring to battle it out for one last showdown. So who will take out the gold gong for borrowing greatness and debt demolition?

Read on to find out…

Scenario 1: Borrowing

If you’re looking at borrowing some cash to fund an upcoming holiday or home refresh, you’re probably thinking about whether you should use a low rate credit card or personal loan. But what’s the difference between the two?

Low rate credit cards: Many low rate credit cards come with “honeymoon” periods for a set period of time, which allows you to make purchases without being slapped with a high interest rate. The great thing about using a low rate credit card is it gives you the flexibility to spend as you please. However, keep in mind the juicy “honeymoon” deal will generally revert to a much higher rate once the intro period has come to an end.

Low rate personal loans: An alternative option is to apply for a personal loan with a low interest rate attached. It’s a good option for those on a strict budget, as the set borrowing amount means you can’t splash out like with a credit card. If you opt for a fixed interest rate this will also mean your repayments will stay the same over the life of the loan, making it easier to budget. However, keep in mind some fixed rate loans come with an exit fee if you try to pay out the loan early.


To make the personal loan vs credit card showdown a fair match, we’ve taken a 0% intro rate credit card and put it against the lowest unsecured personal loan in our database to see which would be cheaper for someone looking to borrow $5,000 repaid over a 1 year period.

NAB Low Rate Card - 0% for 12 months then 13.99% and $59 annual fee.
Total cost over 1 year: $59
Monthly repayment: $417

Newcastle Permanent Personal Loan - 7.99% fixed interest rate and $195 upfront fee.
Total cost over 1 year: $414
Monthly repayment: $435

When we compared the two side by side, the personal loan was found to be the more expensive option, costing a total of $414 once the upfront fee and interest was combined, whereas the credit card option would only cost you the $59 annual fee, as there is no interest charged for the first 12 months.

While the low rate credit card option packed the biggest punch for Aussies looking to borrow $5k, we have one more important question to a credit card or personal loan better for blasting debt?

Scenario 2: Already in debt

If you currently have a balance owing on a store card, credit card or personal loan, then you might be wondering what your options are for ditching debt. The answer is either a balance transfer credit card or debt consolidation loan. Here’s a quick runthrough of each:

Balance transfer credit card: Have debt accruing on your current plastic with a high interest rate? Then you could apply for a BT card, which allows you to move your debt across. BT cards often come with a low interest rate for an introductory term, allowing you to breath easy and pay off your debt without having to worry about a high interest rate hanging over your head. But keep in mind after the BT period, some cards revert to the higher cash advance rate.

Debt consolidation personal loan: This is a good option if you have multiple debt and you want to simplify your repayments by merging it all into one easy to manage personal loan. Unlike a balance transfer card that only allows you to move across credit card debt, with a debt consolidation loan you can consolidate everything from your store card balance to the debt owing on your car loan. Just make sure the new personal loan has a competitive interest rate and low fees, to make consolidating worth your while.


In this comparison, we upped the ante by seeing which would be cheaper for paying off a debt of $20,000 over a 3 year period - a 0% balance transfer card or a low rate debt consolidation loan.

St.George Vertigo - 0% balance transfer offer for 18 months then 21.49% and $55 annual fee.
Total cost over 3 years: $1,801
Monthly repayment: $601

DirectMoney Personal Loan (Fixed, Unsecured) - 8.50% fixed interest rates, $575 upfront fee.
Total cost over 3 years: $3,304
Monthly repayment: $631

When it came to blasting debt for good over a 3 year period, the credit card was found to be far cheaper costing a total of $1,801 when the interest and annual fee was combined, compared to the personal loan offer setting a borrower back $3,304.

The final word

While credit cards took out the gold gong in both the “Borrowing” and “Already in debt” scenarios, when choosing between a personal loan and a credit card, it’s always important to take the time to consider which product is right for you.

For instance, if you’re the type of person that get’s tempted to spend up big with plastic in your pocket, then a personal loan could be for you, which offers set repayments over an agreed period. However, if you know that you can diligently repay anything you spend on a credit card and want the flexibility to pay as you go, then a credit card could be your borrowing match.