DeluxeCalc

Personal Loan vs Credit Card

Which borrowing option costs less?

About this calculator

When you need to pay for something you cannot cover from savings, such as a car repair, a medical bill or a piece of furniture, the two common ways to borrow are putting it on a credit card or taking a personal loan. A credit card usually charges a higher rate but lets you choose how fast to pay; a personal loan usually charges a lower fixed rate over a fixed term but often has an origination fee. This calculator follows both month by month and shows which costs less in interest and fees, and how long each takes to pay off.

How to use this calculator

Enter the Amount to Borrow. For the personal loan, enter the Loan APR you are quoted, the Loan Term in months and the Origination Fee as a percentage. For the credit card, enter its APR and the Monthly Card Payment you would make. If your card offers 0% APR on new purchases for a period, enter the months under Advanced assumptions. Results update as you type, and the inputs are saved in the page address so you can share or bookmark a scenario.

The method

Most lenders deduct the origination fee from the money they send you rather than adding it on top, so the calculator sizes the loan up until what you receive equals the amount you need: the amount borrowed is the amount needed divided by one minus the fee rate. The loan then has a standard fixed payment over its term, and its cost is its interest plus the fee. The card starts at the amount you need. Each month it is charged 0% during any intro period and the card APR divided by 12 afterward, and then your monthly payment is applied, until the balance reaches zero. If your card payment does not cover a month's interest after the intro period, the card is never paid off, and the calculator says so. The headline is the difference in total cost.

Worked example using the default values

You need $5,000. A personal loan at 12% for 24 months with a 5% origination fee must borrow $5,263 so that $5,000 reaches you, a fee of $263. Its payment is $248 a month and its interest is $683, so the loan costs $946 in interest and fees. On a credit card at 24% APR, paying $200 a month, the $5,000 is paid off in 36 months (3 years) with $2,001 of interest. The personal loan is cheaper by $1,054, and it is paid off a year sooner, though its payment is $48 a month higher.

Interpreting the results

The comparison is close to a contest between the card's rate and the loan's rate plus its fee, but speed matters as much. Paying the card faster narrows the gap sharply: at $300 a month the card is paid off in 21 months with $1,143 of interest, and the loan is cheaper by only $197. A 0% intro period on the card can reverse the answer: with 12 months at 0%, the card costs $441 and is cheaper than the loan by $505. A longer loan term lowers the loan's payment but raises its cost: over 36 months the loan's payment falls to $175 but it costs $1,293, still cheaper than the card in the example by $707. The chart shows each balance month by month.

Practical tips

Prequalify with a few lenders, which usually uses a soft credit check, and compare loans by APR, which includes the fee, and by total cost. Look for lenders with no origination fee; in the example, a no-fee loan at the same rate costs $649 instead of $946. If you use a 0% intro card, divide the amount by the intro months to see the payment that clears it in time, and pay at least that. A personal loan's fixed term enforces discipline that a card does not: the card is only cheaper if you actually keep up the payment you entered.

Limitations

Rates are fixed, no new purchases or fees are added to the card, and payments are made on time. Interest is charged monthly at the APR divided by 12, while cards usually compute interest daily, so real card interest can be slightly higher. Some lenders add the origination fee to the loan instead of deducting it; the cost is similar, but check how your lender quotes it. Card minimum payments are not modeled: the card is assumed to be paid at your chosen amount every month. Credit score effects, prepayment penalties and late fees are not included.

Frequently Asked Questions

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