Personal loans vs credit cards
When you’re looking for a means of credit to fund an upcoming expense like a holiday, revamping your home or paying for your big day, two main banking products are likely to come to mind - a personal loan or a credit card.
Choosing between the two can be tricky because they both have their pros and cons and both suit different types of borrowers.
Personal loans
Let’s start by running through the first option of taking out a personal loan and the associated drawcards:
Set borrowing amount
When you take out a personal loan you will be approved for a set amount, which means you won't be tempted to spend more like with a credit card.
- Example: Jenny is looking to renovate her kitchen and has been quoted a fixed price by a contractor. As she knows how much the kitchen reno will cost and only needs the money for this purpose, she decides that a personal loan is her best option.
- Mozo tip: To ensure you’re always paying off your personal loan in full each month, set up a direct deposit to match your pay day from your bank account to the lender.
Interest free cash withdrawals
Unlike credit cards that come with the slap of a high cash advance rate if you withdraw money from an ATM, with a personal loan withdrawing cash is far cheaper, as you won’t be penalised for making this transaction.
- Example: Engaged couple David and Maggie need to pay some of the suppliers for their upcoming wedding in cash. As they know they’ll be charged a steep cash advance rate with the credit card option, David and Maggie decide taking out a low rate loan is their best bet. They look for a personal loan that allows them to make extra repayments and pay it off early, so once they receive their wishing well money from guests they can pump it into the loan.
Repayments remain consistent
If you decide to opt for a fixed rate loan, you’ll easily be able to budget for your repayments as they’ll remain the same over the life of the loan. By comparison, credit card interest rates are variable, which means they can change with the market.
- Example: George is planning his first big overseas vacay and is on a tight budget. A personal loan means he’ll be able to budget for his repayments each month and can travel with the peace of mind they won’t change.
- Mozo tip: Just be mindful, if you’re thinking of making extra repayments on a fixed rate loan some come with the bite of a break cost fee, which can often be quite high.
Compare personal loans here:
Personal Loan Comparison Table - last updated February 27, 2021
- Hot DealNo Fee Personal Loan for loans up to $50,000!
No Fee Unsecured Personal Loan
Fixed
interest rate
comparison rate
Monthly repayment
5.95% p.a.to 17.95% p.a.5.95% p.a.to 17.95% p.a.based on $30,000
over 5 yearsTerms from 2 to 7 years. Representative example: a 5 year $30,000 loan at 5.95% would cost $34,757.21 including fees.
Pay ZERO fees on loans up to $50,000 with NOW Finance. With no establishment fee, ongoing fees or early payout fee. What’s more, get your guaranteed, tailored interest rate in two minutes with no impact on your credit score! Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
CompareCompareNo Fee Unsecured Personal Loan
Pay ZERO fees on loans up to $50,000 with NOW Finance. With no establishment fee, ongoing fees or early payout fee. What’s more, get your guaranteed, tailored interest rate in two minutes with no impact on your credit score! Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
- interest rate
- 5.95% p.a.to 17.95% p.a.
- comparison rate
- 5.95% p.a.to 17.95% p.a.based on $30,000
over 5 years
- Upfront fee
- $0
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly
- Early repayment penalty
- 0
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 2 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rates based on borrower with excellent credit score. Maximum 3 year term for loan amounts $8,000 or less.
Read our Mozo Review to learn more about the NOW Finance No Fee Unsecured Personal Loan
Unsecured Personal Loan
Fixed, Excellent Credit
interest rate
comparison rate
Monthly repayment
6.39% p.a.to 8.69% p.a.6.39% p.a.to 9.61% p.a.based on $30,000
over 5 yearsTerms from 3 to 5 years. Representative example: a 5 year $30,000 loan at 6.39% would cost $35,126.40 including fees.
With low rates for borrowers with excellent credit, a quick 1 minute rate estimate and simple online application, there’s a lot to love about this loan! You’ll not only benefit from no exit fees, there are also no early repayment fees. To qualify, simply earn above $25,000 and you’ll be on the way to start spending.
CompareCompareUnsecured Personal Loan
With low rates for borrowers with excellent credit, a quick 1 minute rate estimate and simple online application, there’s a lot to love about this loan! You’ll not only benefit from no exit fees, there are also no early repayment fees. To qualify, simply earn above $25,000 and you’ll be on the way to start spending.
- interest rate
- 6.39% p.a.to 8.69% p.a.
- comparison rate
- 6.39% p.a.to 9.61% p.a.based on $30,000
over 5 years
- Upfront fee
- $0
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $30.00
- Repayment options
- Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 3 Years
- Maximum loan term
- 5 Years
- Security required
- Unsecured
- Other benefits
- Up front fee may be higher than shown depending on your application. Application fee is $149 for a three year term.
- Other restrictions
- Displayed interest rate is for customers with an excellent credit history. Application fees may be higher depending on loan amount.
Read our Mozo Review to learn more about the Plenti Unsecured Personal Loan
Low Rate Personal Loan (Fixed, Unsecured)
Excellent Credit
interest rate
comparison rate
Monthly repayment
6.75% p.a.to 8.48% p.a.6.96% p.a.to 8.69% p.a.based on $30,000
over 5 yearsTerms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,580.23 including fees.
OurMoneyMarket offer competitive low rates on loans up to $50,000, plus free extra repayments and fee-free redraw facility. Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
CompareCompareLow Rate Personal Loan
OurMoneyMarket offer competitive low rates on loans up to $50,000, plus free extra repayments and fee-free redraw facility. Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
- interest rate
- 6.75% p.a.to 8.48% p.a.
- comparison rate
- 6.96% p.a.to 8.69% p.a.based on $30,000
over 5 years
- Upfront fee
- $150
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rate for Excellent Credit
Read our Mozo Review to learn more about the OurMoneyMarket Low Rate Personal Loan
Personal Loan
Fixed, Secured
interest rate
comparison rate
Monthly repayment
5.99% p.a.to 21.99% p.a.7.26% p.a.to 23.15% p.a.based on $30,000
over 5 yearsTerms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 5.99% would cost $35,820.67 including fees.
Offering loans from $3,000 at a fixed rate for the life of the loan. You can check your personal loan interest rate before applying in 3 minutes with no impact to your credit score. Repayments can be made weekly, fortnightly or monthly and extra repayments are accepted.
CompareComparePersonal Loan
Offering loans from $3,000 at a fixed rate for the life of the loan. You can check your personal loan interest rate before applying in 3 minutes with no impact to your credit score. Repayments can be made weekly, fortnightly or monthly and extra repayments are accepted.
- interest rate
- 5.99% p.a.to 21.99% p.a.
- comparison rate
- 7.26% p.a.to 23.15% p.a.based on $30,000
over 5 years
- Upfront fee
- $250
- Monthly fee
- $13.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $300 in first half of loan, $0 in second half.
- Minimum loan amount
- $3,000.00
- Maximum loan amount
- -
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Various
- Other benefits
- -
- Other restrictions
- To receive minimum rate applicants must be a new Personal Loan customer. Application fee is $140 for loans under $5,000.
Read our Mozo Review to learn more about the Latitude Personal Loan
Unsecured Personal Loan - Excellent Credit
Fixed over 5 years
interest rate
comparison rate
Monthly repayment
6.99% p.a.to 10.49% p.a.6.99% p.a.to 11.92% p.a.based on $30,000
over 5 years5 year term only. Representative example: a 5 year $30,000 loan at 6.99% would cost $35,633.67 including fees.
Be rewarded for your good credit history with low rates. Plus there are no ongoing fees and you can pay off your loan with no early repayment penalties. Simply apply online and get a quote in minutes.
CompareCompareUnsecured Personal Loan - Excellent Credit
Be rewarded for your good credit history with low rates. Plus there are no ongoing fees and you can pay off your loan with no early repayment penalties. Simply apply online and get a quote in minutes.
- interest rate
- 6.99% p.a.to 10.49% p.a.
- comparison rate
- 6.99% p.a.to 11.92% p.a.based on $30,000
over 5 years
- Upfront fee
- $0
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 5 Years
- Maximum loan term
- 5 Years
- Security required
- Unsecured
- Other benefits
- Establishment fee from 0% (with maximum fee of $995) is added to principal loan amount and not paid upfront, amount shown is the minimum of $0.
- Other restrictions
- Interest rate and establishment fee vary according to Equifax credit score. Rates and fees shown are for a Tier 1 (Excellent Credit) graded borrower. Minimum employment income of $30,000 p.a. Application fee added to principal amount of loan.
Read our Mozo Review to learn more about the SocietyOne Unsecured Personal Loan - Excellent Credit
Credit cards
Now that you've had a quick rundown on the benefits of a personal loan, let’s turn our focus to the plastic option. Here are some of the pros of a credit card:
Honeymoon periods
One of the biggest reasons to apply for a credit card is to take advantage of an interest free offer, which means for a set introductory period you will pay no interest at all, as long as you make the minimum monthly repayment.
- Example: Kelly has some car maintenance coming up and needs to pay for everything from the rego through to the green slip. While she doesn’t have the money upfront, she knows that she can pay it back over a period of 12 months. So she applies for a credit card with a 0% intro rate offer for the first year and works out how much she needs to pay each month to pay it off before the card reverts to a higher rate.
Flexibility
Credit cards provide great flexibility as they act as a line of credit that you can draw on when you please. Whereas, personal loans are very structured, as they only allow you to borrow a set amount and pay it back over an agreed period.
- Example: Amelia is planning on giving her home a refresh and wants to undertake the small reno herself. As she will be tackling the jobs on the weekend, she estimates that the refreshes will take a good 6 months to complete. Since she doesn’t have a set budget, she decides that a credit card is her best borrowing match, as she can pay as she goes.
- Mozo tip: While you don’t need to pay the balance in full each month with a 0% interest free offer, make sure you pay at least the minimum repayment amount and before the intro rate period comes to an end, pay off the balance in full.
Freebies
If you love something for nothing then a rewards credit card could tempt you to choose plastic over a loan, as there are options that are linked to rewards programs offering generous point schemes or even cash back offers. Plus many come with complimentary features like travel insurance, concierge and purchase protection.
- Example: John travels around the globe for work to meet clients on a regular basis and needs credit to pay for his upcoming trip. With a platinum credit card he will not only receive free travel insurance while he is abroad (as long as he meets the travel related spending criteria), he will also rack up points that he can put towards reducing the cost of his upcoming flights.
Personal loans vs credit cards
Personal loan | Credit card | |
Interest rates | Interest rates vary across providers, but the average for an unsecured personal loan is 10.47%. | While interest rates for credit cards are generally higher - 16.80% on average - they can be avoided by paying your balance in full each month. |
Repayments | Can be weekly, fortnightly or monthly, with many providers allowing for extra repayments to be made. | While your bill comes monthly, repayments can be made at any time. Interest applies if your balance isn’t paid in full by the payment due date. |
Late fees | Late fees vary across providers, but the average for an unsecured personal loan is $20. | The average is $19.55. Credit card late fees are often either a flat dollar amount, or a percentage of your balance. |
Eligibility criteria | You must be over 18 years old, an Australian citizen or permanent resident, meet the minimum income requirements, and have a good credit score. | You must be over 18 years old, an Australian citizen or permanent resident, earning enough to pay the max credit limit on the card, and have a good credit score. |
Affects your credit score | Yes. If you fail to pay your loan on time, your credit score will take a hit. | Yes. A credit card is a direct line of credit, so if you fail to make a repayment, your credit score will suffer. |
What it's good for | Larger purchases you can’t pay off in a month | Smaller, ongoing purchases. |
The data above is correct as of 10 September 2020.
Debt consolidation loan vs balance transfer credit card
Of course, Aussies don’t just use credit cards and personal loans for making purchases, as they are also a means of ditching debt for good. When choosing between the two, you’ll need to decide whether a debt consolidation loan or balance transfer card will be your weapon of choice.
Debt consolidation loans
Pros:
- Allows you to merge varying debt from credit card through to car loan balances over to a single personal loan
- Set repayments of a fixed interest rate makes it easy to budget, as you’ll know what your ongoing monthly repayments will be each month
Cons
- You could be charged a break cost fee if you try to pay out a fixed rate consolidation loan early
- Debt consolidation interest rates are often higher than balance transfer intro rates
0% balance transfer cards
Pros
- If you work out how much you need to repay each month during the balance transfer period, you could clear yourself of debt without paying any interest
- May pay off debt faster, as you’re not paying interest like with a debt consolidation loan
Cons
- You can’t move personal loan debt over to a balance transfer card
- If you don’t pay off the debt within the BT period the card is likely to revert to a much higher rate, which sometimes is the cash advance rate that could tip over the 20% mark
- May be tempted to spend on the balance transfer card, pushing you deeper into debt
The final word
The number one rule when it comes to choosing between personal loans vs credit cards is thinking about the way you will use the product. For instance, if you know exactly how much you want to borrow and want repayment consistency, then a personal loan could be your borrowing match. Alternatively if you prefer to pay as you go and know you won’t be tempted to spend more than you need to, then a credit card could be for you.
The same applies for ditching debt, as a personal loan may be a good option if you’re on a strict budget, whilst a balance transfer could save you big bucks in interest if you know you can diligently pay the debt back within the interest free period.
Whichever option you choose make sure you conduct due diligence by comparing either the personal loan or credit card markets to find the best deal for you.
^See information about the Mozo Experts Choice Personal Loans Awards
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