Personal Loans vs. Credit Cards: What’s The Difference?

Name: Personal Loans vs. Credit Cards - Jacaranda Finance
Brand: Jacaranda Finance
Rating: 4.9 (2961 reviews)

Suppose you need funds to cover a significant cost such as a wedding, an upcoming holiday, or a home improvement project. In that case, you may consider using either a personal loan or a credit card.
Last modified: 4th July 2024
William Jolly | 8 mins read

William Jolly

Content Manager

William is the Content Manager at Jacaranda Finance. He has worked as both a journalist and a media advisor at some of Australia's biggest financial comparison sites such as Canstar, Compare the Market and Savings.com.au, and is passionate about helping Australians find the right money solution for them.

You can get in touch with William via williamj@jacarandafinance.com.au.

What is a personal loan?

A personal loan is a set sum of money that you borrow from a lender or bank and repay with interest (fixed or variable) and potentially other fees and charges over a set period of time, often between one and seven years. A personal loan can be used for many purposes, and lenders offer a variety of options to suit your financial needs.

At Jacaranda Finance, we offer loans from $3,000 to $25,000 for many key reasons, including home improvement, travel, debt consolidation and more!

Personal loan repayments are usually fixed over a set loan term and can usually be set up on weekly, fortnightly or monthly repayment cycles. If you set the repayment up in line with your income deposit, that could assist with your budgeting and management of your loan repayment.

There are generally two types of personal loans — secured personal loans and unsecured personal loans. A secured personal loan is where an asset is required to ‘secure’ the loan, such as a car or other vehicle. On the other hand, an unsecured personal loan does not require you to provide an asset to secure the loan.

Personal loan fees and charges

Personal loans generally come with a range of additional fees and charges, which can include any of the following:

Establishment fees;
Ongoing fees (monthly, annual, or other);
Extra repayment fees
Early repayment fees;
Missed repayment fees;
Documentation fees;
Encumbrance/REVV check fees;
Risk fees
Early exit fees;
And, of course, interest charges

It’s important to read the terms and conditions for any personal loan so you understand what fees you could be charged and in what circumstances they’ll apply.

You can see the fees and costs of Jacaranda’s loans here.

Average personal loan debt

According to NAB, the average personal loan debt as of December 2023 was $10,925, down from nearly $12,000 in December the year before:

Demographic	Average outstanding personal loan balance
18-29	$9,538
30-49	$12,639
50-64	$9,479
65+	$11,383
Men	$10,233
Women	$11,525
Lower-income	$5,943
Higher-income	$14,298

Source: NAB Australian Wellbeing Survey Q4 2023.

See Our Debt Consolidation Loans

What are the pros and cons of personal loans?

If you’re weighing up whether to get a personal loan, here’s a rundown of the pros and cons on offer with Jacaranda Finance:

Pros	Cons
Fast applications, outcomes and transfers to your bank account Fixed interest rate and fixed repayments over a set term which may assist with your budgeting Simple and easy to understand without complex reward programs and different interest rates for different types of transactions	No flexibility around repayment amounts and cycles If you have marks on your credit history, the interest rate you get may be higher than a credit card No rewards program Less convenient than a credit card that is accepted at a wide range or merchants and online stores when making payments

See our Personal Loan FAQs for more info on how our loans work. It's important to keep in mind that a personal loan may not be the best choice for everyone, and it's always a good idea to carefully consider all of the options before deciding on the best financial product for your needs.

What is a credit card?

A credit card is a financial product that allows the cardholder to borrow money from the issuer to make purchases or withdraw cash. Credit cards are typically issued by banks or other financial institutions and allow the cardholder to make purchases or withdraw cash up to a certain limit called the credit limit.

When a credit card is used to make a purchase, the cardholder borrows money from the issuer and agrees to pay it back at a later date, along with any applicable interest charges. Credit cards also typically have fees for late payments, exceeding the credit limit, or other types of transactions.

Credit cards are generally more suited to daily and regular expenses, like monthly bills and grocery shopping. They may offer interest-free periods, balance transfers, and rewards programs, which can make them attractive to certain types of people.

Credit card fees

In addition to interest charges, credit cards typically come with a variety of fees and charges. Common ones include:

Annual fees: Charged yearly for the use of the card (some cards don’t have one).
Late payment fees: For missing a payment by the due date.
Overlimit fees: For exceeding your credit limit
Cash advance fees: For withdrawing cash using an ATM.
Balance transfer fees: For transferring a balance from one card to another.
Replacement card fees: If you lose a card or have one stolen.

The Reserve Bank of Australia (RBA) found the average annual fee charged by credit cards was $83, but some yearly fees can be upwards of $700! The RBA also states the average credit card interest rate was 19.87% p.a (per annum) at the start of 2024, while some of the more premium credit cards charge interest rates in excess of 20% p.a.

Average credit card debt

According to the RBA’s data, the average balance on each active credit card is $2,978. Of that amount, just under half—$1,363—is accruing interest, aka debt.

What are the pros and cons of credit cards?

Whether or not a credit card is the right option for you depends on a few factors. Below, we list the pros and cons of getting a credit card:

Pros	Cons
Interest-free days (normally 44 days or 55 days, but sometimes more) Good for everyday expenses and if you need emergency funds You can earn rewards and points Insurance and travel benefits Good for spreading out big purchases Could be safer than carrying cash	Potentially high interest rates and fees if you fail to pay back on time You could end up in further debt if you don't pay your repayments in time and in full It can be expensive to access cash from ATMs Temptation to overspend if you have a high limit Rewards programs can often be complex and hard to understand

It's important to keep in mind that a credit card may not be the best choice for everyone, and it's always a good idea to carefully consider all of the options before deciding on the best financial product for your needs.

How is your credit score affected by personal loans and credit cards?

Both personal loans and credit cards have the potential to positively and negatively impact your credit score. It depends on how you use them.

According to Equifax, credit applications (hard enquiries) have the most impact on your credit score (51%), followed by your repayments (30%), adverse events like bankruptcies (10%), credit limits (3%) and more.

Equifax credit score infographic — *Source: Equifax*

This means things like making minimal applications, timely repayments, and staying within your credit limit can all help maintain and improve your credit score over time.

Conversely, missing repayments, constantly applying for loans and going above your credit limit are behaviours that commonly damage credit scores.

How Do Loan Applications Affect Your Credit Score?

Personal loans vs credit cards: Which one is better for me?

When deciding between a personal loan or credit card, there are a few questions you can ask yourself to help make your decision easier. Here are five key ones we’ve collated:


What do you need the money for?	If you're looking to make a big purchase, such as travel or home improvements, then a personal loan might be a more suitable option. However, if you want ongoing access to credit, then you could consider a credit card.
How much do you need to borrow?	Both credit cards and personal loans offer many different credit/loan limits to suit a variety of different borrowers. Credit card limits, for example, can go from as little as $1,000 - $2,000 to $100,000 or more! Personal loans can be very similar: At Jacaranda Finance our loan limits range from $3,000 to $25,000. However, the set nature of personal loan limits means you know exactly how much you need to repay from the start. This can be a positive or a negative, depending on your preferences.
What kind of repayment schedule do you want?	A personal loan has an end date and a structured repayment schedule. On the other hand, a credit card allows ongoing access to money up to the credit limit. If you need more discipline with repayments, then a personal loan might be your best bet. Credit card repayments can generally be more flexible - but be wary of not meeting your payments in full.
What is your financial situation like?	If you're good at following a budget, both credit cards and personal loans can be the right options. But if you're prone to overspending, consider avoiding a credit card. In some cases, you may need a stronger financial position to choose between the two products, as both will have credit criteria you must meet.
What perks do you want?	Credit cards generally come with a range of perks, such as rewards points for spending, airline benefits, travel insurance and more. However, cards with these rewards often have higher fees and interest rates as a result, but this can be worth it for those who pay it off in full each month and spend enough that the costs are worth it. Personal loans, on the other hand, are a simpler product: you borrow a set amount and repay it in instalments with interest. With Jacaranda Finance, you can make extra repayments and pay off your loan early at no extra cost, saving money in the process!

Looking for a personal loan?

If you’ve decided a personal loan is an option for you, you can apply for a Jacaranda Finance Personal Loan in around 5-12 minutes¹ from wherever you are! We are 100% online, which means no hefty paperwork or long queues.

You can apply for up to $25,000, and we can provide you with a same-day outcome². Once your application has been approved, the money should be in your account within 60 seconds³ if you have an NPP-enabled bank account.

If you pay your loan on time, you could also see visible improvements in your credit score⁵ thanks to our Better Credit mobile app, which lets you check your score for free!