Personal loans vs credit cards

Upcoming travel, car upgrade, Christmas festivities or home renovations on the horizon? If you need access to money to cover costs like these, you might be considering a personal loan or credit card. Choosing between the two can be tricky. We’ll explain the differences and why one may be a more suitable borrowing option for you.

The biggest difference between a personal loan and a credit card is that with a personal loan you’re given a lump sum upfront, whereas a credit card you’re given a limit that you can spend up to. Both have their advantages and disadvantages. Read on to see which one best suits you.

What is a personal loan and how do they work?

personal loan is a fixed amount of finance that you pay back in instalments over a period. Generally, they’re used for larger purchases. The personal loans we provide at NAB are unsecured loans, which mean they don’t require assets to take out the loan. You can apply for any amount between $5,000 and $55,000.

Set borrowing amount

When you take out a personal loan, you’ll be approved to borrow a set amount of money. You’ll receive this as a lump sum at the beginning of the loan term. Unlike a credit card, which is a revolving line of credit, you won’t be able to spend more than the amount you’ve been approved for. 


Let’s say you’ve been quoted a fixed price for a bathroom renovation that you need to pay as a lump sum. As you know exactly how much money you’ll need, and it’s more than your credit card limit or more than you can pay back in a month, a personal loan could work well.

Repayments and interest rates

While unsecured personal loans don’t usually carry an interest rate as low as a secured loan, such as a home loan, they typically have a lower interest rate than credit cards.

With a personal loan, you’ll have to pay back a certain amount each month over a set period of time (usually between a one and seven year period). This amount will consist of interest and principal. If you opt for a fixed rate loan, you’ll easily be able to budget for repayments as they’ll remain the same over the life of the loan. If you opt for a variable rate loan, your loan repayments may change as interest rates change, making it harder to budget for your repayments. The upside of a variable rate - you’ll be able to have access to a redraw facility on your loan, which comes in handy if you need money unexpectedly. With both our fixed and variable rate loans you’ll be able to make additional payments and repay the loan early without incurring fees. Learn about our personal loan interest rates.

Fees and charges

A personal loan will generally have an application fee when you take out the loan and a small monthly fee.

What is a credit card and how do they work?

credit card provides access to funds up to a certain limit. They’re useful for daily expenses, monthly bills or smaller purchases that you’ll be able to pay off each month. Like personal loans, they’re also a type of unsecured lending.

Flexible borrowing

Credit cards provide great flexibility as they act as a line of credit that you can use as you need. You’re offered a credit limit and can continually spend up to that limit (as long as you pay the required minimum monthly repayment). A minimum credit card limit starts from as low as $1,000. Unlike a personal loan where you’ve borrowed a fixed amount upfront and that’s all you can spend, you can continue to spend with credit cards up to your available balance. Credit card debt is revolving, and if you’re not careful with your spending, you can spend more than you planned or are able to manage. It’s important to keep your credit card balance to an amount that you can manage and afford to repay. With our budget planner we'll help you do the numbers so you can budget your income successfully.


Let’s say you’re gradually renovating and spreading the cost across a number of months, you could look at paying for the renovations as you go with a credit card (provided you feel confident that you can pay off the money you spend).

Repayments and interest rates

As a general rule, credit cards carry a higher interest rate than personal loans. On your credit card’s due date, you’ll need to make a minimum monthly payment. If you want to avoid paying interest, you need to pay off the card balance in full each month.

Fees and charges

Aside from interest charged, a credit card typically has an annual card fee. There are additional costs for withdrawing cash - a cash advance fee and a variable cash advance rate (a higher interest rate for withdrawing cash). If you need to withdraw a lot of cash, a personal loan may be a better option as there are no fees to do this.

So what are the benefits of paying with a credit card? 

If you’re going to use a credit card for purchases and expenses, it’s best to only spend what you can afford to pay off each month to avoid costly interest charges. Aside from helping with short term cash flow issues throughout the month, or using your credit card to help manage your monthly household expenses, credit cards have other benefits. Many cards come with reward programs that reward you with earning points for each dollar spent on your card. You can accrue points and redeem for flights, accommodation, gift cards and more. Some cards also have travel insurance, extended warranty insurance and purchase protection insurance. Use our compare tool or selector tool to find more information about our NAB credit cards.

The verdict

If you have good control over your spending and regularly follow a budget, then a credit card may be suitable. But if it’s a big purchase or expense you need to finance, and you're unable to pay the debt off quickly, a personal loan is worth looking at.

Whether you choose a credit card or personal loan, remember that they're both debts. Before you decide to borrow money, think about whether you really need to make the purchase and if you need to make it now. If it’s an expense that can wait, take a look at our budget planner to help you make a considered decision. And always check the fees and charges of any loan or credit card you apply for.

Need help budgeting or managing debt? We can help with money tools and tips.

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Credit cards issued by National Australia Bank Limited. © 2020 National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.