Personal Loans vs. Credit Cards: Which One to Choose?

Both personal loans and credit cards provide financial flexibility, but they serve different purposes. Choosing the right one depends on your financial needs, repayment capability, and spending habits.

Let's compare them based on key factors:

1. Purpose of Borrowing

Personal Loan: Best for large, one-time expenses like home renovations, medical emergencies, weddings, or debt consolidation.

Credit Card: Ideal for everyday expenses, short-term cash flow issues, and emergency purchases.

2. Loan Amount & Credit Limit

Personal Loan: Higher loan amounts (₹50,000 – ₹50 lakhs, depending on eligibility).

Credit Card: Lower credit limits (varies based on income and credit score, typically up to ₹5-10 lakhs).

3. Interest Rates

Personal Loan: Lower interest rates (10.5% – 24% per annum).

Credit Card: Higher interest rates (24% – 48% per annum if you carry a balance).

4. Repayment Structure

Personal Loan: Fixed EMIs over a fixed tenure (1–5 years).

Credit Card: Flexible repayment, but high-interest charges if the full amount is not paid before the due date.

5. Processing & Fees

Personal Loan: Processing fees (1% – 3% of the loan amount).

Credit Card: Annual fees (varies, often waived for premium users).

6. Approval Process

Personal Loan: Requires income proof, credit history check, and documentation (may take a few days).

Credit Card: Faster approval process, especially for pre-approved offers.

7. Impact on Credit Score

Personal Loan: Affects credit score based on timely EMI payments.

Credit Card: Helps build credit history but can harm your score if overused or payments are missed.

When to Choose a Personal Loan?

• Need a large sum for a specific purpose.
• Prefer fixed EMIs and a structured repayment plan.
• Want lower interest rates than a credit card.

Final Verdict

Go for a personal loan if you need a lump sum for a big expense and want predictable repayments.

Use a credit card for smaller, recurring purchases and if you can clear dues on time to avoid high interest.

Comparison Table: Personal Loan vs. Credit Card

Feature	Personal Loan	Credit Card
Best For	Large expenses (home renovation, wedding, medical, debt consolidation)	Everyday expenses, short-term cash needs, emergencies
Loan Amount / Credit Limit	₹50,000 – ₹50 lakh	₹10,000 – ₹10 lakh (varies by income & credit score)
Interest Rate	10.50% – 24% per annum	24% – 48% per annum (if balance is not paid on time)
Repayment	Fixed EMIs over 1 – 5 years	Monthly bill, pay minimum due or full balance
Approval Time	1 – 7 days (depends on lender)	Instant to a few days (pre-approved cards are faster)
Processing Fees	1% – 3% of loan amount	₹0 – ₹5,000 annually (depends on the card type)
Credit Score Impact	Affects credit score based on EMI payments	Helps build credit but can hurt if overused
Flexibility	Fixed loan amount, fixed tenure	Flexible spending & repayment, revolving credit
Additional Benefits	None	Cashback, reward points, travel perks, discounts
Risk Factor	Defaulting can impact credit score & legal action may follow	High interest on unpaid dues, risk of overspending

Best Personal Loans in India (2025)

Here are some popular personal loan providers with competitive interest rates:

• HDFC Bank Personal Loan – Interest: 10.50% – 18.00% p.a., Loan Amount: ₹50,000 – ₹50 lakh
• ICICI Bank Personal Loan – Interest: 10.75% – 19.00% p.a., Loan Amount: ₹50,000 – ₹50 lakh
• Bajaj FinServ Personal Loan – Interest: 10.50% – 25.00% p.a., Loan Amount: ₹50,000 – ₹40 lakh
• Kotak Mahindra Bank Personal Loan – Interest: 10.99% – 24.00% p.a., Loan Amount: ₹50,000 – ₹25 lakh

Best Credit Cards in India (2025)

Top credit cards based on different categories:

• For Cashback & Rewards: HDFC Millennia Credit Card – 5% cashback on online spends
• For Travel: SBI Elite Credit Card – Lounge access, air miles, travel perks
• For Shopping: Amazon Pay ICICI Credit Card – 5% cashback on Amazon purchases
• For Beginners: Axis Bank Flipkart Credit Card – 5% discount on Flipkart