There are good times to use a personal loan and good times to use a credit card.  The problem is often that the borrower is not sufficiently aware of when to use what type of credit.

The great advantage of a credit card is its flexibility.  A credit card can be used in a large number of shops, it can borrow – or not borrow – instantly and there is usually a great deal of flexibility about when the credit card balance will be repaid.

The flexibility comes at a price.  Credit cards charge some of the highest interest rates in consumer finance.  As credit card lenders only have a vague idea how much money they will be lending on the credit card, and have little warning if a credit card stops being paid, then they charge for this uncertainty by having high interest rates.

Loans on the other hand are far less flexible.  In most cases the loan will be for a set amount that is paid on an agreed date and for which there is a structured payment.  Loans tend to be cheaper than credit cards in that they have interest rates that are far lower.  Some loans are secured against a property or car, and these loans are even cheaper as there is less risk to the lender that the loan will not be repaid as the property can be repossessed and the loan then repaid out of the proceeds of the property.

A loan is better for large items that will need to be paid off over time.  As there is a lot of money, and the money will take quite a long time to repay then the interest rate becomes very important.  As loans tend to have a lower interest rate then this can be very good.

Another time to use a loan is when a person shows that they are not very disciplined in paying down credit card bills.  The need for constant monthly loan repayments, which can be harmonised with salary repayments, will mean that for this sort of person the loan will make a bigger dent into their debt.

People often use loans if they have a large amount of debt, and put it into one consolidation loan.  As well as having a lower interest rate a consolidation loan also has one time when it is paid off each month.