Personal Loan or Credit Card? Which One Is Better for Your Finances


Picture your financial vertical as a stage where two financial superheroes, personal loans, and credit cards, take the spotlight. In India, where financial stability is of utmost importance, understanding the nuances between these two can significantly impact your financial well-being. So, let’s delve into their unique strengths and characteristics to determine which one aligns better with your financial goals.

Interest rates

Personal loans usually come with a lower rate of interest than credit cards. The rate of interest on a personal loan is fixed for the whole loan repayment tenure, making it simpler to plan out your finances. 

In contrast, credit cards have a higher rate of interest, particularly when you carry balances forward from one month to the next. The interest constituent on credit card balances can compound very quickly, making it essential to pay off your bills timely and in full. 

Purpose of usage

Personal loans are designed to address substantial one-time expenses. Whether it’s covering a sudden medical emergency, renovating your home, or funding your higher education, personal loans provide a lump sum amount to meet these significant financial needs.

Credit cards are your companions for day-to-day expenses. They are perfect for online shopping, dining out, paying utility bills, and making small purchases. Essentially, credit cards offer convenience in your daily financial transactions.

Loan amount

The amount you can borrow through a personal loan depends on your creditworthiness and eligibility. Banks and financial institutions like ICICI assess your income, credit score, and repayment capacity to determine the loan amount.

Credit cards offer revolving credit card limit, which differs depending on your past credit record and the credit card type you hold. This limit can be utilised repeatedly as long as you remain within it and make the repayments. 

Credit score impact

Timely repayment of personal loan EMIs can have a positive impact on your credit score. It showcases your responsible credit behaviour to credit bureaus.

Your credit card usage significantly influences your credit score. Maintaining a low credit utilisation ratio and making on-time payments are crucial for a positive credit history.

Repayment structure

When you take a personal loan, you commit to repaying it in fixed monthly instalments over a predetermined loan tenure. This structured approach helps you budget your monthly expenses.

Credit card bills require a minimum payment each month, but you have the flexibility to pay the full balance or a part of it. Paying only the minimum amount can lead to accumulating interest charges.

Approval process

Applying for a personal loan involves a more detailed application process. Banks like ICICI assess your financial documents, credit score, and other factors, which may take some time.

The approval process for credit cards is generally quicker, and some banks, including ICICI, offer instant approvals for eligible applicants.

Credit utilisation

Your personal loan does not affect your credit utilisation ratio since it provides a lump sum amount, and you’re not continuously using it.

High credit card balances relative to your credit limit can negatively impact your credit score. It’s advisable to keep your credit utilisation ratio low (below 30%) for a healthy credit profile.

Emergency funds

In emergencies, a personal loan provides you with a lump sum amount, which can be used to address unforeseen financial crises.

Credit cards serve as a revolving line of credit in emergencies, allowing you to access funds up to your credit limit. However, it’s essential to use this option judiciously due to the associated interest and fees.

EMI options

Personal loans allow you to choose fixed EMIs using tools like the ICICI personal loan EMI calculator. This enables you to plan your budget effectively. So, before you hit on the ICICI personal loan apply option, ensure to use the online calculator for an informed decision.

Credit card payments offer flexibility, including the option to pay the minimum amount due or more. However, paying only the minimum can result in accumulating debt due to interest charges.

Annual fees

Personal loans generally do not come with annual fees, making them straightforward in terms of costs.

Credit cards often come with annual fees, but some ICICI credit cards may offer fee waivers based on spending patterns or card types.

Tenure flexibility

Personal loans offer flexibility in selecting loan tenures, allowing you to align the repayment period with your financial capabilities.

Credit cards do not have a fixed tenure for repayments. Balances can carry forward indefinitely, but paying in full each month can help you avoid interest charges.

Cash withdrawals

Personal loans are not intended for cash withdrawals. Attempting to withdraw cash may lead to additional charges.

Credit cards allow cash withdrawals, but this convenience comes with high fees and immediate interest charges, making it an expensive option.

Credit limit management

Personal loans provide a fixed loan amount, eliminating the need for credit limit management.

To avoid exceeding your credit limit, you must carefully manage your credit card spending and payments.

Rewards and benefits

Personal loans do not offer rewards or cashback since they are primarily for borrowing funds.

Credit cards frequently come with reward points, cashback offers, and discounts on various purchases, enhancing your overall spending experience.

Prepayment options

Personal loans often allow prepayment, and some banks, like ICICI, offer lower interest rates on prepayments, helping you reduce your overall interest cost.

Credit cards typically do not allow prepayment since they are revolving credit lines.


Personal loans are unsecured in nature and likewise, credit cards too are unsecured, meaning no collateral is required to avail the credit option. 


Placing an application for a personal loan needs extensive documentation, which includes income proof, address proof, identity proof and other crucial documents. In the case of the credit card application, the documentation is simpler, which often requires proof of address, income, and identity. 

Interest-free period

Personal loans do not offer an interest-free period since interest is charged from the beginning of the loan tenure.

Credit cards provide an interest-free period on purchases if you pay the previous month’s balance in full and on time, allowing you to avoid interest charges.

Late payment charges

Missing EMI payments on a personal loan can result in late payment charges and adversely affect your credit history.

Late payment on credit cards may lead to late payment fees and higher interest on unpaid balances.

Utilisation for investments

While personal loans can be used for investments, it’s essential to consider the associated risks and returns carefully.

Credit cards are generally not advisable for investments due to their high interest rates, which can erode potential gains.

The choice between a personal loan and a credit card holds significant importance. While both have their merits and demerits, understanding the nuances is the key. For larger, one-time expenses, an ICICI personal loan can provide the financial support you need, with the advantage of fixed EMIs and lower interest rates. In contrast, an ICICI credit card can provide rewards and convenience for day-to-day expenses. Your decision must align well with your life goals and the particular circumstances you are in. So, choose wisely, and may your financial journey be prosperous and secure.