Personal Loans vs. Credit Cards: Which Is Better for Borrowing?

By Sam Swenson | Updated January 5, 2026
reading time 3 min read
Man working in kitchen with laptop learning about personal loans and credit card debt

Personal loans may be better for large, one-time expenses because they typically have fixed rates and predictable payments, while credit cards may offer more flexibility for smaller or ongoing purchases.

Credit cards can be a convenient way to handle expenses, but like any other financial tools, it’s important to manage them properly to avoid any stress. It’s easy to rely on credit cards for all spending needs, however, it may not be the best solution for big-ticket expenses.

Personal loans are an alternative option for large purchases that come with different attributes. Here are six things you should consider when comparing credit cards and personal loans:

1. Interest rates: Personal loans vs. credit cards

The most basic point of comparison is the cost of borrowing, or the interest rate. Upstart-powered personal loans have fixed rates beginning in the single digits. Your loan terms will be determined based on your credit, income, and certain other information provided in your loan application.

Some credit cards offer a low introductory rate, but your rate will reset to the standard rate once the introductory period has expired. On the other hand, there are no surprises with a fixed-rate personal loan: your interest rate and monthly repayments never increase.

2. Using your card’s credit limit hurts your credit score

Using a credit card for large purchases increases your credit utilization ratio, which can hurt your credit score. 

For example, if you have a credit card with a $5,000 limit, and you charge $4,500, you’re now utilizing 90% of your credit. Keeping your credit utilization around 10% will improve and help maintain your credit score.

On the other hand, personal loans give you the opportunity to diversify the credit that you use. Having a healthy variety of credit sources is one of the five categories used to calculate credit scores.

3. Fixed term personal loans make it easier to stick to a budget

An unexpected expense can be devastating to anyone’s budget. It’s much harder to stick to your savings goals when your monthly bills are unpredictable.. 

A personal loan takes the guesswork out of the equation: the amount borrowed, your monthly payment amount, and timeline for repayment are all known quantities. 

With credit card debt, everything seems as though it’s in flux, which makes it difficult to know what your monthly layout will actually be. The psychology of credit cards makes it easy to overspend and get comfortable making only minimum payments. This can prolong your repayment schedule and ultimately cause you to waste money on interest.

4. A late payment on your personal loan won’t trigger a rate repricing

A late payment on a personal loan will typically cost you a $15 late fee, but your interest rate will remain the same. Since rates have risen in recent months, these penalty rates may be even higher. Remarkably, recent findings in 2020 from the CFPB have shown that credit card companies collect more than $12 billion in penalty fees each year.

5. A personal loan simplifies and consolidates your debt

The average American has about 4 credit cards, each of which comes with its own terms, interest rate tiers, and billing schedule. Needless to say, this can be difficult to track.  

A personal loan enables you to consolidate and simplify your finances by keeping these variables in one place. Behavioral finance studies have shown that the fewer decisions you have to make—and the fewer data pieces you have to memorize—the more likely you are to save and stay on top of your finances.

6. The best personal loans often offer better customer service

Credit card companies are known to be massive and expensive to operate. If you have a problem with your card, getting someone on the phone who has the authority to resolve your issue can be a daunting task.

Online lenders that offer personal loans tend to be smaller companies with less overhead, which ultimately means a better customer experience for borrowers. At Upstart, our customer support team is eager to help answer any of your questions as they arise.

Comparing loan offers through prequalification can help you evaluate rates, fees, and repayment terms without affecting your credit score. Some platforms, like Upstart, allow borrowers to check personalized loan options with a soft credit inquiry before applying.

*This content is general in nature and provided for informational purposes only. This content is not specific to Upstart, except where explicitly stated. This content may contain references to products and services offered through Upstart’s credit marketplace. Upstart is not a financial advisor and does not offer financial planning services.

About the Author

Sam Swenson

Sam is a fee-only financial planner, CPA, and freelance writer. After nearly a decade in various Wall Street roles, Sam found a niche in creating objective, accessible, and actionable financial plans for everyday people. Sam has also published long- and short-form personal finance and investment planning content on various websites across the internet. Outside of work, Sam enjoys running, biking, reading, and philosophy, as well as spending time with his wife, daughter, and goldendoodle.

More resources you may be interested in

Two young business people standing by a window and looking at a digital tablet
Top 6 Online Personal Loan Pitfalls to Avoid in 2026
How to Evaluate an Online Loan: Rates, Fees, and Red Flags
Portrait of a happy man shopping online.
How to Get a Personal Loan Without Increasing Debt

See if Upstart is right for you

Check your rate lock Won't affect your credit score¹

Upstart Network, Inc. (NMLS #936133) is not a lender. All loans on its marketplace are made by regulated financial institutions.

All mortgage lending is conducted by Upstart Mortgage, LLC dba Upstart Home Lending. (NMLS #2443873). Equal Housing Opportunity.

  1. Checking your rate won’t affect your credit score: When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.
  2. Upstart’s model considers education: Neither Upstart nor its lending partners have a minimum educational attainment requirement in order to be eligible for a loan.
  3. 41% more approvals and 33% lower rates than a traditional model: As of publication in April 2026, and based on a comparison between the Upstart model and a hypothetical traditional model using Upstart data from Jan – Dec 2025. For more information on the methodology behind this study, please see Upstart’s Annual Access to Credit results here.
  4. Unsecured Loans: While most loans through Upstart are unsecured, certain lenders may place a lien on other accounts you hold with the same institution. There may be an option to secure your personal loan through Upstart with your vehicle, which will require a lien to be placed on the vehicle. It is important to review your promissory note for these details before accepting your loan.
  5. Loan amounts from $1,000 -$75,000: Your loan amount will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will qualify for the full amount. Minimum loan amounts vary by state: GA ($3,100), HI ($1,500), MA ($7,000). Maximum loan amounts may vary by state.
  6. Closing and funding timeline: In April 2026, 10% of funded HELOCs achieved a closing timeline of 2 days or less and a funding timeline of 7 days or less. This timeline assumes consumers close with our remote online notary, provide supporting documentation promptly, and ensure the information provided is accurate and consistent with our verification process. Delays, discrepancies, and other unforeseen factors may impact the closing timeline. MBA’s 2025 Home Lending Study reports an average industry closing time of 37 days.
  7. APRs from 6.2% – 35.99%, with 3 or 5 year terms: The full range of available rates varies by state. The lowest rates are only available to the most qualified applicants. A representative example of payment terms for an unsecured Personal Loan is as follows: a borrower receives a loan of $10,000 for a term of 60 months, with an interest rate of 17.50% and a 7.25% origination fee of $725, for an APR of 21.23%. In this example, the borrower will receive $9275 and will make 60 monthly payments of $252. APR is calculated based on 5-year rates offered in March 2026. There is no downpayment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application. Not all applicants will be approved.
  8. Instant deposits: To receive instant funding, your bank account must support instant transfers. If your account does not support instant transfers, funds will be available to you depending on your bank’s transaction processing time and policies.
  9. Always On Commitment: We are committed to maintaining your credit limit as long as you continue to meet program eligibility and account requirements. To ensure the safety and security of all our members, we reserve the right to adjust or close lines in specific circumstances, including account default or late payments, suspected fraud, violation of our terms of service (including abusive behavior), or when necessitated by legal or regulatory requirements.
  10. Cash Line draws: You may request a draw at any time. Only one draw may be outstanding at a time; after it is fully repaid, you may request another.
  11. HELOC APRs as low as 6.52%: Terms shown here are subject to change without notice. APRs for initial advances range from 6.52% to 18.00% based on rates offered as of April 2026. The lowest rate is only available to consumers willing to become a member of a credit union and to those who meet a minimum FICO score of 780, CLTV under 70%, and DTI under 45%. Your actual rate will depend on many factors such as your credit history, combined loan-to-value ratio (CLTV), line amount, loan term, lien position, and property state. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
  12. No annual fee, prepayment penalty, or fees to redraw: Terms shown here are subject to change without notice. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
  13. 2,500+ Variables:As of 3/31/2026. “Variables,” often also referred to as “features,” refers to raw variables and combined variables considered in our AI models. A “raw” variable is a non-combined, conceptually distinct unit of data, such as “applicant-reported savings.” A “combined” variable is data that has been transformed, combined, or otherwise engineered from a raw variable or set of raw variables, such as “applicant-reported savings” divided by “loan amount.
  14. Fully automated loans: In Q2 2026. Percentage of Loans Fully Automated, which is defined as the total number of loans in a given period originated end-to-end (from initial rate request to final funding for personal loans and small dollar loans, and from initial rate request to signing of the loan agreement for auto loans) with no human involvement required by the Company divided by the Transaction Volume, Number of Loans in the same period.