Personal Loan or Credit Card – Which Is Better for Big Expenses?

We all want ‘Badi gadi, bada Ghar aur solid bank balance’. But, can our salary handle all of it at once? No, right. That is why for ‘Bada Kharcha’, we need financial assistance. In today’s world, there are multiple ways to get it. But remember, each of the options has its pros and cons. 

Two of the most common yet confusing choices are personal loans and credit cards. Every time we make a big payment, an internal debate arises,” Should I swipe my credit card or apply for a personal loan?”  And trust us, this is not a small decision. Let’s understand it with an example.

For example, Nitin wants a new laptop, which costs ₹80,000. Since he has spent his entire salary paying rent and bills, he has two choices. He can swipe his credit card and get the laptop instantly. But if he only pays the minimum due ( 5% or ₹4,000), 36-42% annual interest will apply to the remaining balance. In just a year, that ₹80,000 laptop could cost him over ₹1.2 lakh!

On the other hand, he could take a personal loan with a 12% interest rate. He can repay in 12 EMIs of around ₹7,500, and clear the debt with ₹90,000 total repayment. It is way cheaper than what the credit card offers.

So, what should Rahul do? If he can repay the full amount within a month, a credit card works just fine. But if he needs 6-12 months, a personal loan is the smarter choice.

Similarly, you should assess your choices and make a decision that is suitable for you. Your choice can either make you financially stable or end up in a debt trap. Credit cards offer instant liquidity, while personal loans provide structured repayment plans. But which one is truly cost-effective, flexible, and better for your credit score?

Let’s explore the differences between the two and help you make a better decision.

What is a Personal Loan?

A personal loan is an unsecured, fixed-term loan, and repaid via Equated Monthly Installments (EMIs). These loans typically range from ₹3,00,000 to ₹1,00,00,000, with tenures of 5-7 years. 

If you have a CIBIL score of 700+ and a stable income of a minimum ₹40,000, then congratulations dearest reader. You are very much qualified to apply for it. A better CIBIL score and high income would give you better terms, though.

For example, Priyank, a 30-year-old IT professional, needed ₹5,00,000 for home renovation. So, he took a personal loan at 12% for five years. With a CIBIL score of 730 and a ₹60,000 salary, he secured a ₹11,122 EMI. Had his score been 650, his rate would be 16%, raising his EMI to ₹12,168.

What is a Credit Card?

A credit card gives you a spending limit, usually 2 to 3 times your monthly income. However, it might change depending on your credit score, bank, and income. You can keep using it as long as you repay on time, making it super convenient for short-term expenses. 

But here is the thing, if you only pay the minimum (3–5% of your bill), then you are doing everything wrong. This is because the remaining balance continues to pile up with high interest rates. anywhere between 15–36% per year. That small unpaid amount can turn into a massive debt before you even realize it.

For Example, Dhaniram’s credit card bill is ₹50,000, but he only pays the minimum amount of 5% (₹2,500). The remaining ₹47,500 starts accruing interest at, say, 30% annually (or 2.5% monthly). 

In just one month, his debt grows by ₹1,187, making his next bill ₹48,687. If he keeps paying only the minimum, he could pay double the original amount over time.

While credit cards may scare you with their high interest rates, you cannot sideline the other benefits they offer. People plan their European vacations based on points earned on credit cards.

Comparative Analysis

1. Interest Rates & Fees

My friend, Anirvan had a ₹5 lakh balance on a credit card with a 24% APR. This meant he would incur approximately ₹10,000 in monthly interest. 

But, what would happen if he had a personal loan of the same amount at a 15% APR? He would pay only ₹5,800 in monthly interest. 

Did you read that? He would save a total of ₹4,200 each month. 

Interest rates matter a lot when taking a loan or using a credit card. No one wants to pay double the amount they owe just because of high interest! 

Plus, banks often charge extra fees, like a 0.25%–3% processing fee on loans. Sounds small? Well, my friend, 1% of ₹10,00,000 is ₹10,000! That’s real money, and every rupee counts when it’s your ‘hard-earned paisa’. Let’s learn more about it from the table given below.

2. Repayment Flexibility

Everyone wants to repay their debt without stress and still enjoy life. That is why the minimum payment rule on credit cards sounds so tempting. Under this, you only need to pay 3%–5% of your monthly balance. Sounds easy, right? It’s like paying ₹4,000 per month on a ₹1,00,000 credit card bill.

But, you won’t even know and this so-called "flexibility" will become a debt trap! While credit cards attract you with small payments, the remaining balance keeps piling up with high interest. Suppose you pay only the minimum amount for 4 months, totaling ₹12,000. The remaining ₹88,000 will continue growing at, say, 24% annual interest. 

You know what that means? Your debt will be more than ₹1,09,000 in a year. It is more than you initially owed. ‘Phir toh tum credit card ka nahi, credit card tumhara use karega!’ Let’s understand it better with an example.

For example, Vyom is a business analyst and needed ₹3 lakh for an urgent expense. Instead of taking a personal loan, he used his credit card and planned to make minimum payments of ₹15,000/month (5% of his balance).

However, with a 24% APR (2% per month), interest kept piling up. Even after six months, his balance was still around ₹2.8 lakh. This is because a significant portion of his payment covered interest instead of reducing the principal.

If Vyom continued with ₹15,000/month payments, he could clear the debt in approximately 2.2 to 3 years, paying a total of ₹5–6 lakh (including ₹2–3 lakh in interest). However, if he reduced his payments over time, repayment could stretch to 5–6 years, with 

total interest exceeding ₹5 lakh. If in any case, he misses a few payments, we would have to face several penalties such as:

 So, the payment will vary as follows:

On the other hand, Anjali took a personal loan for the same amount. With a fixed EMI of ₹10,400/month at 15% APR, she knew her loan would be cleared in 3 years. When she missed an EMI once, she only paid a 2%–3% late fee. She quickly settled it to protect her credit score.

Let’s summarise the entire point with the help of the table given below: 

3. Loan Amounts & Eligibility

Meera has finally decided to renovate her home. New furniture, fresh paint, modern lighting, it is all adding up to ₹12 lakh. Now, where did she get the money? 

Her salary definitely cannot handle a ₹12 lakh budget, so she checked her credit card. With ₹3 lakh limit on each card, she considered using multiple cards but the interest rates are high enough to make her rethink her decision. Finally, she decided to go with a ₹40 lakh personal loan.

So as you have seen, choosing the right borrowing option is about how much you can borrow and whether you qualify for it. A credit card might seem convenient, but its limit is based on your income, repayment history, and card type. It is often lower than 

what’s needed for big expenses. Even premium credit cards rarely exceed ₹20 lakh in limit.  

On the other hand, personal loans offer higher borrowing capacity, sometimes up to ₹70 lakh, and structured repayment. These are a more suitable choice for large financial commitments.

So, What’s Right for You?

Now that we’ve covered the key differences, it is important to assess each factor carefully. Maybe you’re okay with a longer tenure as long as the EMI is manageable. But for your ‘kirane wale uncle’ time is money. Being a businessman, he’d rather clear his dues faster, even if it means paying a bit more each month.

When to Choose a Credit Card

1. Short-Term Needs: It is Ideal for urgent expenses like car repairs, travel bookings, or for limited-time discounts.

2. Rewards & Perks: Offers like 0% EMI schemes and cashback on purchases can help you save money. Also, credit cards come with points and you can save a lot if you earn and use these points wisely.

When a Personal Loan is Better

1. Debt Consolidation: If you’re struggling with multiple high-interest credit card debts, a personal loan is best for you. It can merge them into one manageable payment and maybe at an interest rate lower than what you owe.

2. Big-Ticket Expenses: It is best for major financial commitments like education, weddings, or home renovations. You will get structured EMIs to make repayment easier. This way you can enjoy every event without taking extra stress.

Conclusion

At the end of the day, choosing between a personal loan and a credit card should be based on 2 questions. First, how soon you can repay, and second, how much interest you're comfortable paying. If you can clear the full amount within a month, a credit card will work wonders for you, often with rewards and cashback. 

But if you need more time to pay off a big purchase, a personal loan saves you from being trapped in a debt cycle. The key is to plan smartly, compare interest rates, assess your repayment capacity, and choose the option that keeps you financially secure. Don't let impulsive decisions lead to financial stress. 

‘Samajhdari se faisla lo, paisa aapke liye kaam kare, na ki aap paisa chukane ke chakkar mein hi lage raho!’

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?