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Personal Loan vs Credit Card: Which is better in the short-term finances?

Submitted by admin on December 23rd, 2025

On occasions when they have urgent financial demands, most people in India usually have to decide between a credit card and a personal loan. The two alternatives offer easy accessibility to funds, yet, they vary substantially in terms of cost, repayment pattern and overall financial influence in the long run. It is possible to understand these variations and make an informed choice among borrowers.

Personal Loans made simple

A personal loan is an unsecured loan provided by banks and the NBFCs on a predetermined period, mostly one to five years. The loan is given to the borrower as cash in to the bank account and the loan is repaid in the form of a fixed monthly atm. As compared to credit card interest rates, the interest rates charged on personal loans are usually lower, particularly to an individual with a high credit score.

Some of the planned costs that personal loans can be used include medical procedures, marriage, vacation, or consolidating debts that have high rates. And because the repayment schedule is known, the borrowers are in a position to budget their funds better.

Understanding Credit Cards

The credit cards provide a line of credit that revolves and can be spent on purchases or withdrawn cash. In case the total amount outstanding is paid during the interest free period (usually 30-45 days), there is no interest charged. But when one pays only the minimum amount, the rest of the balance will accrue very high interest rates usually ranging between 30-45 percent per annum.

Credit card is most suitable when it comes to tiny one-off costs and cash flow shortages. They also have rewards, cashback and discounts and are capable of being used in everyday spending.

Cost Comparison

In the case of short term borrowing, the interest rates of personal loans tend to be lower than credit card rates. Although credit cards have interest-free duration, the interest is rapidly increasing when the balance is not paid off. Another charge that may add up to a lot of money is the interest added to credit cards like charges on late payment, over-limit fee and cash withdrawal fee.

Impact on Credit Score

Credit cards as well as personal loans influence your credit score. Personal loans aged on time are good to your credit profile. In case of credit cards, it is very important to be able to maintain low rates of credit usage and to be able to settle the entire outstanding balance within due time. The large balance in credit card can have a negative effect on your credit score.

What Alternative Do You prefer?

A personal loan would generally be more ideal in case you require a larger loan with scheduled payments. A credit card can be cost-efficient in case the need is small and you are sure that you are going to repay in the interest-free period.

Conclusion

Whether to take a personal loan or a credit card is a decision that lies on the size of the loan required, the ability to repay the loan, and personal discipline. The assessment of the cost and the capability to pay back allows to verify that short-term borrowing is not going to be transformed into the long-term liability.