Credit cards vs loans: funding options explained

If you want to borrow money or need to make sure you have money available there are a couple of common paths you can take – two of which are credit cards and personal loans.

One of the first things you need to consider is what you can afford. Over time, you need to pay:

  • the balance - the amount you originally borrowed
  • any interest payable - an extra percentage charged every month or year
  • any fees and charges that come with the line of credit

It's also important to know that any unsecured lending repayments of over 12 months’ duration will affect the amount you may be able to borrow for a mortgage.

Credit cards and personal loans compared

Credit cards - a flexible line of credit that offers:

  • flexible borrowing - you can spend any amount up to a set limit
  • flexible repayments - at the end of the statement period you can pay off an amount between the full balance and the compulsory minimum payment (the more you repay the less interest you will be charged)
  • introductory interest rates - there may be an interest-free period for purchases, however interest will be charged if you don't pay off your balance within this period
  • low limits - generally credit cards provide lower borrowing limits than may be available with personal loans, so any larger borrowing needs may be constrained


Personal loans - a way to make a big upfront purchase that offers:

  • a set amount - you can borrow the amount you need for a project or purchase
  • a fixed term - you pay the money back in instalments over a set time (often several years)
  • predictable interest rate and repayments - if you opt for a fixed rate loan, your interest rate can be set at one rate for the entire repayment period
  • higher loan amounts - typically allow for larger borrowing needs than credit cards

When it may be suitable to apply for a credit card

  • If you’re looking to borrow a smaller amount that you can repay within the interest-free period
  • If you don’t need to use the money for anything urgent, but want it on hand in case of an emergency

Let's say you need to spend £1,000 - perhaps to go to a family member’s overseas wedding. If you're confident you'll pay back £100 every month, you should pay off the debt within a year. If you opt for a credit card with 0% interest on purchases in the first 18 months, you'll pay no interest at all.

However, if you find yourself outside the 0% interest period or using the credit card to buy other things, you may have to pay some interest and the interest rate may be higher than on a personal loan.

When it may be suitable to apply for a personal loan

  • If you need to borrow a larger amount that you would like to repay over several years
  • If you would like structured, regular repayments
  • If you would like to lock in your interest rate for the term of the personal loan

Let's say you need to spend £7,000 - perhaps to install a new kitchen. You can comfortably budget to pay back £1,500 per year and agree with your lender on how quickly you'll pay off the loan. You'll pay interest, but it's usually lower than credit card interest. 

What next?

See more information about HSBC credit cards and personal loans to find what will suit you.