If you have bad credit, both a personal loan and a credit card are possible routes to borrowing. They work differently on cost, flexibility, and how they affect your credit file. Which one makes more sense depends on what you need the money for and how you plan to repay it.
This article is information, not financial advice. It explains how the two products compare so you can go into any decision with a clearer picture. Your circumstances are unique, and the right choice for you will depend on factors a general guide cannot know.
Which is better: a loan or a credit card with bad credit?
Neither is automatically better. It depends on what you are borrowing for.
If you need a fixed sum for a one-off purpose and want to know exactly what you will pay back, a personal loan can be easier to budget around. If you need a small, flexible line of credit that you can repay quickly, a credit card may cost less in interest. If you are already struggling financially, neither may be the right answer, and free debt advice is usually a better first step.
How do the two products compare?
The table below sets out the main differences between a bad credit personal loan and a credit-builder or bad credit credit card.
| Feature | Bad credit personal loan | Bad credit / credit-builder credit card |
|---|---|---|
| How you receive the money | Lump sum paid into your bank account | A credit limit you draw on as needed |
| Typical APR range | Often 20%, 60%+ for bad credit borrowers | Often 30%, 60%+ for credit-builder cards |
| Repayment structure | Fixed monthly repayments over an agreed term | Minimum monthly payment; you choose how much extra to pay |
| Repayment flexibility | Less flexible; early repayment may carry a charge | More flexible; you can repay as fast or slowly as you choose |
| Total cost certainty | Predictable if rate is fixed | Less predictable; depends on how much you spend and repay |
| Credit limit | Typically £500, £5,000 for bad credit borrowers | Often £200, £1,500 initially on credit-builder cards |
| Useful for | Larger one-off purchases or consolidating smaller debts | Smaller ongoing purchases, building a credit history |
| Risk if you miss a payment | Missed payments damage your credit file and may incur charges | Same; lenders may also increase your interest rate |
Both products are regulated by the Financial Conduct Authority (FCA). Lenders must carry out affordability checks before approving either.
When a personal loan may be more suitable
A personal loan can be a reasonable option in a specific set of circumstances.
If the amount is larger than a credit card limit would cover. Credit-builder cards typically start with low limits. If you need £2,000 or more, a loan may be the only way to borrow that sum in one go.
If you want certainty over total cost. A fixed-rate loan has a defined end date and a total repayable amount you can see before you sign. That can make budgeting more straightforward.
If you are consolidating small, high-interest debts. Bringing several debts into one monthly payment at a single rate can simplify your finances. Be careful here, though: consolidation does not reduce what you owe. If the new term is longer, you may pay more in total even if the monthly amount is lower.
Be careful if:
- The APR offered is significantly higher than the representative APR advertised
- The loan term is long, a lower monthly payment may mean a much higher total cost
- You have not used an eligibility checker before applying, as a declined application leaves a hard search on your file
When a credit card may be more suitable
A credit-builder credit card can work in a different set of circumstances.
If the amount is small and you plan to repay it quickly. If you can clear the balance in full each month, you pay no interest at all. That makes a credit card significantly cheaper than a loan for short-term, small-scale borrowing.
If you want to build a credit history gradually. Using a credit card for small regular purchases (a monthly bill, for example) and paying it off in full each month is one way lenders and credit reference agencies can see a pattern of responsible borrowing. Over time, and with consistent behaviour, this can contribute positively to your credit file.
If you need flexibility in the repayment amount. A credit card gives you the option to pay more in busy months and less when money is tight, as long as you meet the minimum payment. Be careful with this, though.
Be careful if:
- You only make minimum payments, interest on bad credit cards can be high and debt can grow over time
- You are tempted to spend up to the limit, high credit utilisation can put downward pressure on your credit score
- You miss a payment, this records on your credit file and the lender may increase your rate
What to check before applying for either
Before applying for a loan or a credit card with bad credit, a few checks are worth doing.
Check your credit file first. Errors on your credit file can affect what you are offered. All three main credit reference agencies in the UK, Experian, Equifax, and TransUnion, allow you to check your file, and any inaccuracies can be disputed. MoneyHelper has guidance on how to do this.
Use a soft search eligibility checker before applying. A soft search does not appear to other lenders and does not affect your credit score. A full application results in a hard search, which does appear on your file. Multiple hard searches in a short space of time can temporarily reduce your score and make lenders more cautious.
Look at the total amount repayable, not just the monthly amount. The representative APR shown in advertising is the rate that at least 51% of accepted applicants receive. With bad credit, you may be offered a higher rate. The total amount repayable tells you the full cost.
Think about what happens if your circumstances change. A personal loan has fixed repayments regardless of your income. A credit card has a minimum payment, but spending flexibility can be a risk if your income is irregular.
If you are already struggling financially, taking on more credit is unlikely to help and may make things worse. Free debt advice is a more useful place to start.
What if neither is the right answer?
Sometimes the honest answer is that borrowing more is not the right step.
If you are already missing payments, using credit to cover essentials like food or bills, or relying on borrowing to get to the end of the month, a loan or credit card will not address the underlying problem. In these situations, free debt advice is a safer and more practical first step.
The following organisations offer free, confidential advice:
- StepChange Debt Charity: 0800 138 1111 (freephone)
- National Debtline: 0808 808 4000 (freephone)
- MoneyHelper: 0800 138 7777 (freephone)
All three are free to use and are not tied to any lender or product.
Frequently asked questions
Can I get a credit card with bad credit? Some lenders offer credit-builder cards specifically for people with a poor credit history. They typically carry high interest rates and low credit limits. Paying off the balance in full each month means you pay no interest and may, over time, help improve your credit file.
Which is cheaper: a bad credit loan or a credit card? It depends on how long you borrow for. A personal loan has a fixed term and total cost you can calculate upfront. A credit card costs nothing if you clear the balance quickly, but can become expensive if you only make minimum payments over a long period.
Will applying for either one damage my credit score? A full credit application for a loan or a credit card usually leaves a hard search on your credit file, which other lenders can see. Using an eligibility checker first involves only a soft search, which does not affect your score. Multiple hard searches in a short period can reduce your score temporarily.
Is one better than the other for rebuilding credit? Both can contribute to rebuilding credit if managed carefully. A credit card used regularly and cleared in full each month can build a positive payment history. A personal loan shows you can manage fixed repayments over time. Neither is certain to improve your score, the outcome depends on your overall credit behaviour.
What if I am already struggling with repayments? If you are already finding repayments difficult, taking on more credit is unlikely to help and may make things worse. Free debt advice from StepChange, National Debtline, or MoneyHelper is usually a more useful starting point than a new loan or card.
What is the representative APR on bad credit products? Lenders are required to show a representative APR, but only 51% of accepted applicants need to receive that rate. With bad credit, the rate you are offered may be higher. Checking the total amount repayable, not just the monthly amount, gives a clearer picture of the true cost.
Related guides and further reading
This article sits under the Bad Credit Loans guide, which covers the main types of borrowing available when your credit history is poor.
You may also find it helpful to read the Credit Cards guide for more on how credit cards work and what to look for when comparing them.
Sources: Financial Conduct Authority (FCA) consumer guidance; MoneyHelper borrowing and credit information.
- Can I get a credit card with bad credit?
Some lenders offer credit-builder cards specifically for people with a poor credit history. They typically carry high interest rates and low credit limits. Paying off the balance in full each month means you pay no interest and may, over time, help improve your credit file.
- Which is cheaper: a bad credit loan or a credit card?
It depends on how long you borrow for. A personal loan has a fixed term and total cost you can calculate upfront. A credit card costs nothing if you clear the balance quickly, but can become expensive if you only make minimum payments over a long period.
- Will applying for either one damage my credit score?
A full credit application for a loan or a credit card usually leaves a hard search on your credit file, which other lenders can see. Using an eligibility checker first involves only a soft search, which does not affect your score. Multiple hard searches in a short period can reduce your score temporarily.
- Is one better than the other for rebuilding credit?
Both can contribute to rebuilding credit if managed carefully. A credit card used regularly and cleared in full each month can build a positive payment history. A personal loan shows you can manage fixed repayments over time. Neither is certain to improve your score — the outcome depends on your overall credit behaviour.
- What if I am already struggling with repayments?
If you are already finding repayments difficult, taking on more credit is unlikely to help and may make things worse. Free debt advice from StepChange, National Debtline, or MoneyHelper is usually a more useful starting point than a new loan or card.
- What is the representative APR on bad credit products?
Lenders are required to show a representative APR, but only 51% of accepted applicants need to receive that rate. With bad credit, the rate you are offered may be higher. Checking the total amount repayable — not just the monthly amount — gives a clearer picture of the true cost.