A personal loan gives you a fixed sum of money, repaid in set monthly instalments over an agreed term. A credit card is revolving credit: a spending limit you can borrow against, repay, and borrow again. Which costs less depends on what you need to borrow, how much, and how long repayment will take.
This article is information, not personalised financial advice. It explains how the two products work and what to think about when comparing them. For guidance based on your own situation, a free, regulated money adviser can help. MoneyHelper (moneyhelper.org.uk), backed by the UK government, offers free, impartial guidance on borrowing.
Which is cheaper, a personal loan or a credit card?
It depends on three things: the interest rate you are offered, the amount you want to borrow, and how long repayment will take.
For larger amounts (typically above £1,000) repaid over one to five years, a personal loan often carries a lower annual percentage rate (APR) than a standard credit card. For smaller amounts that you can clear within a few months, a credit card can cost less, especially if it comes with a 0% purchase period. There is no single answer that fits every borrower.
How do the two products actually work?
Personal loan
You borrow a fixed amount, agree a repayment term (usually one to seven years), and pay a fixed monthly instalment for the life of the loan. The interest rate is typically fixed, so the monthly payment stays the same from start to finish.
For example, a £5,000 loan at 8.9% APR over three years would cost roughly £158 a month. You know exactly when the debt ends.
Credit card
A credit card gives you a revolving credit limit. You can spend up to that limit, repay some or all of it, and spend again. You choose how much to repay each month, as long as you meet the minimum payment.
The flexibility is useful. The risk is that paying only the minimum each month means interest accumulates on the remaining balance for a long time. A £2,000 balance at 24% APR, cleared only on minimum payments, can take over a decade to clear and cost far more than the original amount.
Side-by-side comparison
| Feature | Personal loan | Credit card |
|---|---|---|
| How you receive the money | Lump sum paid to your account | A credit limit to spend against as needed |
| Interest rate type | Usually fixed | Usually variable |
| Typical APR range (UK) | Around 6% to 30%, depending on credit profile (FCA CONC data; figures checked June 2025) | Around 20% to 35% for purchases; 0% deals available (FCA CONC data; figures checked June 2025) |
| Repayment structure | Fixed monthly instalments | Flexible minimum payments (or more) |
| Repayment term | Set at the start (1 to 7 years typically) | Open-ended, no forced end date |
| Early repayment | Possible, but may incur an early repayment charge | No penalty for early repayment |
| Best suited to | A defined, one-off cost with a clear repayment plan | Everyday spending, short-term borrowing, 0% deals |
| Credit impact | Hard search on application | Hard search on application |
| FCA regulated | Yes | Yes |
A worked example: three ways to borrow £3,000
To make the cost difference concrete, consider three borrowers each needing £3,000 and planning to clear the debt over 24 months.
Scenario A: Personal loan at 9.9% APR (fixed) Monthly repayment: approximately £138. Total repaid over 24 months: approximately £3,312. Total interest: approximately £312.
Scenario B: Standard credit card at 24.9% APR (variable), paying a fixed £138 a month At this rate, paying the same £138 a month clears the balance in roughly 26 months. Total repaid: approximately £3,588. Total interest: approximately £588, around 88% more than the loan.
Scenario C: 0% purchase credit card, 0% for 24 months, then 24.9% APR If the full £3,000 is cleared before month 24, total interest is £0. If even £500 remains at month 24, that balance begins accruing interest at the standard rate. The saving depends entirely on repayment discipline before the promotional period ends.
These figures are illustrative and rounded. The rate you are actually offered will depend on your credit profile and the lender's assessment.
When does a personal loan tend to make more sense?
A personal loan may be worth considering when you have a specific, one-off cost, a home improvement, a car repair, a wedding, and you want a clear repayment schedule.
The fixed monthly payment means you know exactly what is leaving your account each month. That can make it easier to budget.
A personal loan can also be worth looking at when the interest rate you are offered is clearly lower than the rate on a credit card you would otherwise use. Compare the total amount repayable on both options, not just the monthly payment or the APR headline.
A longer loan term lowers the monthly payment but increases the total interest paid. A useful first step is to use a loan repayment calculator to model different terms and see what the borrowing actually costs in full.
When does a credit card tend to make more sense?
A credit card may suit you better when:
- You need flexibility over when and how much you repay.
- The purchase is smaller and you are confident you can repay it within a few months.
- You qualify for a 0% purchase deal and can clear the balance before the promotional period ends.
- You want the additional consumer protection that Section 75 of the Consumer Credit Act provides on purchases between £100 and £30,000.
Section 75 makes the card issuer jointly liable with the retailer if something goes wrong with a purchase, for example if goods are not delivered or a company goes into administration. For the protection to apply, there must be a direct link between the credit agreement and the purchase: paying a deposit on a credit card for a holiday package, for instance, can cover the full cost of the trip, not just the deposit amount. Paying via a third-party payment service may break that link, so it can help to check how the payment is processed before relying on Section 75.
The important bit with a 0% card is the end date. When the promotional period ends, any remaining balance is charged at the standard rate, which can be considerably higher than a personal loan rate. Setting up a monthly payment plan that clears the balance before that date is the key discipline.
What to check before deciding
Check the representative APR carefully. Lenders advertise a representative APR, but under FCA rules (CONC 3.5) only 51% of accepted applicants need to receive that rate. If your credit profile is not strong, the rate you are actually offered may be higher. An eligibility checker (which usually uses a soft search) can give a sense of your likelihood of being accepted and the rate you might receive before you make a full application.
Compare the total amount repayable, not just the APR. A loan with a lower APR can cost more in total if the term is much longer. Look at the full cost figure in the loan illustration. For more on how lenders calculate interest, see our guide to loan interest rates.
Think about whether you need the full amount upfront. If you are not sure how much you will need, or you need to spend in stages, a credit card may suit better. A personal loan pays out the full amount on day one; interest starts immediately.
Consider your repayment discipline honestly. A personal loan enforces repayment through a fixed direct debit. A credit card requires you to set and stick to your own repayment plan. Neither is better in principle, but one may suit your habits better than the other.
Check for early repayment charges on loans. If there is any chance you will want to repay the loan ahead of schedule, check what the early repayment charge would be. Some lenders charge one to two months' interest.
Frequently asked questions
Is a personal loan cheaper than a credit card?
Often yes, for larger amounts over a longer term. Personal loan rates are typically lower than standard credit card purchase rates. However, a 0% credit card deal can be cheaper still, provided you clear the balance before the 0% period ends. The answer depends on the amount, the rate you are offered, and how quickly you repay. The worked example above illustrates how the costs can diverge across different scenarios.
Does applying for either affect my credit score?
A full application for a personal loan or a credit card leaves a hard search on your credit file, which other lenders can see. Using an eligibility checker first usually leaves only a soft search, which does not affect your credit score. Avoid making several full applications in quick succession.
Can I use a personal loan to pay off a credit card?
Yes. Some people take a personal loan at a lower interest rate to clear credit card balances. This can reduce monthly interest costs, but it does not erase the debt. Borrowing more on the cleared card afterwards would leave you worse off overall.
What is the difference between a fixed and a variable rate?
A fixed rate stays the same for the life of the loan, so your monthly repayment does not change. A variable rate can rise or fall, usually in line with the Bank of England base rate. Most personal loans in the UK are fixed-rate. Many credit cards charge variable rates on purchases.
What happens if I only make the minimum payment on a credit card?
Paying only the minimum each month means the bulk of your balance earns interest. On a typical credit card rate, even a modest balance can take many years to clear on minimum payments alone, costing significantly more than the original amount borrowed. Paying more than the minimum each month reduces the total interest paid and shortens the repayment period considerably.
Which option suits a large, one-off purchase?
For a large, one-off purchase such as a new boiler or home repair, a personal loan can give a clear repayment schedule and often a lower rate. A 0% purchase credit card can also work well if the amount fits within the credit limit and you can clear it before the promotional period ends.
Sources and further reading
Both personal loans and credit cards are regulated by the Financial Conduct Authority (FCA) under the Consumer Credit Act 1974. The representative APR advertising rule is set out in FCA CONC 3.5. You can find general guidance on borrowing costs on the MoneyHelper website (moneyhelper.org.uk), which is backed by the government.
For more detail on how personal loans work, see our Personal loans guide. For more on credit cards, including balance transfers and 0% deals, see our Credit cards guide.
- Is a personal loan cheaper than a credit card?
Often yes, for larger amounts over a longer term. Personal loan rates are typically lower than standard credit card purchase rates. However, a 0% credit card deal can be cheaper still, provided you clear the balance before the 0% period ends. The answer depends on the amount, the rate you are offered, and how quickly you repay.
- Does applying for either affect my credit score?
A full application for a personal loan or a credit card leaves a hard search on your credit file, which other lenders can see. Using an eligibility checker first usually leaves only a soft search, which does not affect your credit score. Avoid making several full applications in quick succession.
- Can I use a personal loan to pay off a credit card?
Yes. Some people take a personal loan at a lower interest rate to clear credit card balances. This can reduce monthly interest costs, but it does not erase the debt. Borrowing more on the cleared card afterwards would leave you worse off overall.
- What is the difference between a fixed and a variable rate?
A fixed rate stays the same for the life of the loan, so your monthly repayment does not change. A variable rate can rise or fall, usually in line with the Bank of England base rate. Most personal loans in the UK are fixed-rate. Many credit cards charge variable rates on purchases.
- What happens if I only make the minimum payment on a credit card?
Paying only the minimum each month means the bulk of your balance earns interest. A balance of £2,000 at 24% APR could take many years to clear on minimum payments alone, costing significantly more than the original amount borrowed. Paying more than the minimum each month reduces the total interest paid.
- Which option suits a large, one-off purchase?
For a large, one-off purchase such as a new boiler or home repair, a personal loan can give a clear repayment schedule and often a lower rate. A 0% purchase credit card can also work well if the amount fits within the credit limit and you can clear it before the promotional period ends.