Credit cards vs Loans: Which one is right for you?

Advice from the experts at MoneySuperMarket

Man standing on credit card holding money and house as percentage sign

Most of us at a point in our lives will want to borrow money, the burning questions is, which should we go for, a loan or a credit card?

Both options are able to provide you with the money that you need – whether you're looking to fund a holiday or car, it's important to keep in mind that they both work in very different ways.

The money experts at MoneySuperMarket outline the positives and negatives of both to help you make a decision on which is right for you.

Credit cards


Extensive 0% deals

A juicy benefit of many cards is that they offer 0% introductory rates on purchases over a long period of time.

What does this mean? If you pay off what you owe during the introductory period, then you won't have to pay any interest at all.

A great example is the Post Office Money Matched credit card which offers 0% on purchases for 27 months, that's over 2 years. You need to make your purchase on the card within the first three months otherwise the 0% period will drop to 16 months.

When the 27 months are up, you will then pay 18.9% pa (variable), so try to clear your balance before then. The card has a representative rate of 18.9% APR (variable)*.

Money transfers

A lot of credit cards out there allow you to make money transfers (cash lump sums) right into your bank account. Rates on money transfers are often much lower than that of a personal loan.

An example of this is, Tesco Clubcard Credit Card for Balance Transfers and Money Transfers which has a 40-month 0% introductory rate for money transfers, as long as they are carried out within 90 days.

What does this mean? You can effectively have Tesco transfer, let's say, £2,500 into your account, and you won't have to pay them any interest for three years and four months.

However, keep in mind that you'll need to pay a fee of 3.94% of the amount transferred – which for £2,500 would be £98.50.

And once the introductory period ends, you'll pay 20.62% pa (variable) on any outstanding balance. The card has a representative rate of 18.9% APR (variable)*.

Consumer protection

Thanks to Section 75 of the Consumer Credit Act, when you purchase something that costs between £100 and £30,000 using a credit card, the card provider is mutually liable with the retailer if something happens to go wrong.

So, for example, if you ordered a sofa costing £300 and the shop you bought it from goes bankrupt before it is delivered, the credit card provider should refund you the full amount.


Interest charges

You'll need to be disciplined when paying off what you are owing on your credit cards as soon as you possibly can, and that goes double when paying off the 0% offer before it ends, otherwise interest charges can very quickly mount up. Unlike loans, credit cards don't require you to clear balances within a certain time frame.

Low minimum payments

It might sound and look great, but card minimum monthly payments are usually set at very low levels. If you elect to pay that amount every month, it will end up taking you much longer to clear your debt and you'll pay a lot more in interest overall. So if you can, pay off more than the minimum monthly amount.

Low credit limits

Another shortcoming is that credit cards usually don't offer particularly high credit limits, so if you're looking to make a big purchase, you might not be able to borrow the sum you need.



Larger borrowing at great rates

You can usually borrow much more by taking out a loan than a credit card.

If you're looking to borrow between £7,500 and £15,000, there is great news, rates are super competitive within this bracket.

An example, Ikano Bank offers a very low 3.2% APR representative when you borrow between £7,500 and £15,000 over one to five years.

Also HSBC offers a very competitive 3.3% APR representative when borrowing between £7,000 and £15,000 over the same period of one to five years.

Better flexibility

Another positive of going down the loan route is that you can decide how long you need to repay what you owe. If you're looking to borrow a large lump sum, you'd have the option of spreading the monthly repayment over several years.

You'll have peace of mind that you will know exactly how much that you are repaying every month, and that at the very end of the term, you'll have nothing extra to pay.


Higher rates for smaller amounts

One of the main drawbacks of loans is that the rates are often a lot higher if you are borrowing relatively small amounts.

For example, if you were borrowing £2,500 with Sainsbury's Bank, you'd pay a high 7.5% APR representative, repaid over one to five years.


Another con is if you are looking to pay off your loan early, there might be a penalty charge to do so, which is usually equivalent to two to three months interest.

Sometimes lenders could also charge arrangement fees, which can increase the overall cost of credit.

Use our Smart Search tool

If you happen to be leaning towards either a loan or a credit card, you will likely want to be accepted quickly. Our Smart Search tool can help you do that.

The purpose of Smart Search is to give you an indication as to how likely you are to be accepted before you apply, and the activity won't be recorded against your credit file.

It indicates how likely you are to be accepted before you actually apply, and the activity won't be recorded on your credit file.

Outside Smart Search, a lot of applications that are turned down can have a negative impact on your credit score, which in turn can make it harder to be approved for any kind of credit product, such as a card or a loan.

With Smart Search, you will only have to click on the 'Find a loan' or 'Find a card' button, enter a few personal details that will help us find the right product for you, you'll be then presented a list of loans or cards alongside the likelihood of being accepted for each.

You can read more about this here.

*Representative Example: If you spend £1,200 at a purchase interest rate of 18.9% pa (variable), your representative rate will be 18.9% APR (variable).
All credit cards and loans are subject to status and terms and conditions. Over 18s, UK residents only. Terms and conditions apply. See for further information.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.