Personal loan and credit cards differ in type of debt, rate of interest and repayment period. This articles throws light on the differences in their features and use.

Nature of debt:

Credit card debts is a 'revolving debt' i.e. it gives you a credit limit on the card and you can borrow as much or as little as you want within that limit.The amount of credit you have available from month to month depends on how much you spend and how much you repay.

Personal loans are 'instalment debts' i.e. a personal loan gives you a pre-determined lump sum amount and you make equal payments over a specified time period until the loan is paid off, no longer than 60 months. The loan repayments include principal and interest. Personal loans are usually unsecured consumer loans and are granted for any personal use to meet current financial needs.

Rate of interest:

Personal loans often offer slightly lower interest rates than credit cards, depending on your credit score.

Repayment period:

Personal loans give you a fixed repayment period; whereas credit cards give you a credit limit within which you can borrow as per your requirement, with no definite deadline for repaying the money. So in case of a credit card debt you can repay just the minimum balance on your credit card each month or you can repay off the entire amount that you owe. However, many credit card borrowers make the mistake of paying only the minimum monthly payment, and hence remain stuck in debt for a longer time.

Prepayment penalty:

Personal loans may have a pre-payment penalty charge depending on the terms of the loan you take.Not all personal loans have prepayment penalties, but be sure to ask and read the fine print before you sign.Credit card debts have no prepayment penalty.

Thus, we conclude that credit cards are ideal for short-term borrowings wherein you can pay off the full balance each month whereas personal loans are suitable for medium to long term debt financing.