Whether you need to make some home improvements, you want to buy a new car, you have school fees to pay or something breaks around the house, there will more than likely be a time where you need some extra cash to cover your expenses. With so many different credit opportunities, it can be difficult to decide which option is the best for you. Below we outline the main differences between a personal loan and a credit card so that you can make an informed decision about what you need.


What is a personal loan?

Think of a personal loan as a lump sum of money. You take out a loan of a specific value and you need to pay back that amount in pre-defined installments and in an agreed upon amount of time. This can also be called installment credit. The total amount that you need to pay back is reduced every time you make a repayment.


And what about a credit card?

With a credit card, you have a credit limit. You can borrow money at any time, up to your credit limit. Your credit card repayment is known as revolving credit. With revolving credit, the credit limit does not change once you make a payment. You can borrow up to a certain amount, because of this flexibility, you can borrow lower amounts with higher interest rates in comparison to installment credit. You can learn more about credit repayments here.


When should I use a credit card and when should I use a personal loan?

A credit card is best when you’re needing to make smaller, more everyday purchases. Your credit card is generally a lower borrowing amount than a loan. For everyday purchases, it will be more comfortable to repay these smaller amounts.

A personal loan can be used to help you afford a larger ticket item and help you realise some of your dreams. Think about things such as: buying a car, renovating your home, financing your child’s education or putting the money towards a special occasion.

Remember your credit behaviour

How you use the credit that you have is vitally important. Your payment behaviour and the way you manage your credit will affect whether you have access to credit in the future. If you’re trying to build up a good credit history, your on-time payments and credit utilization are key factors. Paying your credit accounts on time is the biggest aspects that will positively influence your credit score. You should aim to only use 30% of your available credit at any given time for a good credit utilization rating. For example, if you have a credit card with a limit of R10 000, then you should only use R3 000 and then make sure that you repay this amount.


As you can see, there are key differences between a credit card and a personal loan and the reasons for using each of them. Are you looking for a personal loan or a credit card? You can enquire about both here: