Personal Loans vs. Credit Cards: Financing Options Explained

When health and wellness care costs more than you can comfortably pay out of pocket, financing may help make the expense more manageable. Whether you’re considering an elective cosmetic procedure, dental work or surgery for your pet, personal loans and credit cards offer different ways to borrow and repay the funds.

Choosing between them may depend on the type and size of the expense, how quickly you can repay what you borrow and whether promotional financing is available. Understanding how each option works — including repayment terms, interest and fees — can help you determine which one better fits your financial situation.

Personal Loan vs. Credit Card

You may consider a personal loan for large, one-time expenses when you want fixed payments and a set payoff date. You may consider a credit card for everyday purchases or short-term borrowing that you can pay off quickly.

Here’s how personal loans and credit cards compare:

What Is a Personal Loan?

A personal loan is usually an unsecured installment loan that provides a fixed amount of money up front. For example, CareCredit Pay Later is a health and wellness financing option that allows borrowers to make fixed monthly payments to cover larger, more defined planned purchases.

Key features of personal loans

Personal loans typically share several features that can make repayment more predictable:

• Lump-sum funding. Personal loans provide a one-time payment to you (or your health provider).
• Fixed repayment term. You’ll know when the loan is scheduled to be paid off, which can make it easier to plan your budget.
• Fixed APR. Many personal loans have a fixed APR, meaning the interest rate does not change over the life of the loan and payments are more predictable.
• Predictable monthly payments. With personal loans, you’ll usually make the same monthly payment for the entire loan term.
• Origination fees. Some loans charge up-front fees that are added to the principal loan amount or subtracted from the borrowed amount.
• Useful for planned expenses or debt consolidation. Because personal loans generally have a set repayment schedule, borrowers can account for the monthly payment in their budgets and know when the debt is scheduled to be paid off.

What can personal loans be used for?

Personal loans can be used for a variety of planned and unexpected expenses, including:

• Debt consolidation
• Health and wellness expenses
• Home improvement
• Medical bills
• Dental procedures
• Emergency expenses
• Large purchases
• Moving costs
• Wedding expenses

What Is a Credit Card?

A credit card is a revolving line of credit that lets you borrow up to a credit limit, repay some or all of the balance and borrow again. Unlike personal loans, credit cards have no end date as long as you keep the account in good standing. Credit cards can be a helpful tool for ongoing expenses or to use as a cash alternative. Some cards offer promotional financing, rewards or benefits that can provide advantages to users who are able to maximize them.

Key features of credit cards

Credit cards offer several features that provide flexibility in how you borrow and repay:

• Revolving credit limit. Credit cards can be used repeatedly up to your available credit limit as long as the account remains in good standing.
• Minimum monthly payments. Each month, you’re responsible for making at least the minimum payment, which varies depending on your balance.
• Interest on outstanding balance. If you carry a balance from month to month, you are typically charged interest on the amount you owe.
• Potential rewards. Some credit cards offer cash back, points, miles or other perks.
• Fraud protection. Paying with a credit card provides a layer of consumer protection and may reduce your liability in the case of fraudulent activity.
• Useful for recurring or everyday spending. Because you can borrow, repay and borrow again up to your available credit limit, credit cards can provide flexibility for ongoing expenses.

What can credit cards be used for?

Credit cards can be useful for everyday spending, recurring costs and certain short-term expenses, including:

• Groceries, gas and everyday purchases
• Online shopping
• Short-term emergency expenses
• Travel bookings
• Purchases you can pay off in full
• Introductory APR offers, if repaid before the promotional period ends

Fees to Compare Before Choosing

Before borrowing, review the fees that may come with a personal loan or credit card. Some fees apply automatically, while others may be triggered by certain transactions or actions, such as missing a payment. Fees also vary by lender or card issuer.

Personal loan fees

Depending on the lender and loan terms, personal loan fees may include:¹

• Interest fees. This is interest on the amount borrowed, and the APR reflects the total cost of the loan, including interest plus certain fees you cannot avoid.
• Origination fee. This is an up-front fee charged by some lenders for loan processing.
• Late payment fee. If you miss a monthly due date, you may pay a penalty fee.
• Returned payment fee. For payments that bounce because of insufficient funds, a penalty fee may apply.
• Possible prepayment penalty. Some lenders penalize you for accelerating your loan payoff.

Credit card fees

Depending on the card and how you use it, credit card fees may include:²

• Annual fee. Some credit cards charge a yearly fee to keep the card open.
• Interest fees. This is interest on purchases, balance transfers and cash advances based on the applicable APR. Some cards also offer introductory rates that may increase after the promotional period ends.
• Late payment fee. Missing your monthly payment typically incurs a penalty fee.
• Balance transfer fee. This is a one-time fee for moving another card’s balance to a credit card. (Often, consumers transfer a balance to take advantage of a promotional APR.)
• Cash advance fee. If you borrow cash against your card’s credit limit, an up-front fee is charged based on the borrowed amount.
• Foreign transaction fee. Some credit cards charge a fee for purchases made outside the U.S. or in a foreign currency.

Impact on Credit Score

Anytime you apply for or open a line of credit, including a credit card or personal loan, it can impact your credit score. Your payment history and how you manage the new account can have a larger impact on your credit over time.

Impact of a personal loan on your credit score

A personal loan may affect your credit through:³

• Hard credit inquiry. This is from the initial credit check performed by the lender when you apply for a loan.
• Account age. Credit scoring algorithms look at the average age of your credit accounts. When you open a new account, the average drops, which can cause a score decrease.
• Payment history. Making consistent, on-time payments on a personal loan can have a positive impact on your credit score; late or missed payments can drop your score.
• Credit mix. Your ability to manage different types of credit, including revolving and installment loans, is a credit score factor. Adding a personal loan and managing it well can be good for your credit health.
• Total debt. Credit scoring models may consider the total amount of debt you owe, including the balance of a personal loan.

Impact of a credit card on your credit score

A credit card may affect your credit through:⁴

• Hard credit inquiry. Every credit card application has the potential to drop your score.
• Account age. More recent account openings may lower your average account age, while keeping older accounts open and active can benefit your score.
• Payment history. Just as with loans, paying your credit card bills on time each month is one of the key building blocks for a strong credit score.
• Credit utilization. The amount of credit you are using relative to your credit limit is your utilization. If you have a $5,000 credit limit and you owe $2,500, you are utilizing 50% of your credit. Credit scores are more favorable when consumers keep their utilization below 30% and as close to zero as possible.
• Total revolving balances. What you owe collectively across your credit cards is also a factor in credit scoring. Working toward lowering your balances can improve your score.

CareCredit: An Alternative Financing Option

CareCredit is different from a general-purpose credit card in a few ways. The CareCredit platform offers two ways to pay for care you want and need:

• The CareCredit credit card, a reusable line of credit for ongoing eligible health, wellness and veterinary expenses accepted within a participating provider network and eligible categories*
• CareCredit Pay Later, an installment loan option with fixed monthly payments for larger or more defined care costs

Common eligible uses of CareCredit

The CareCredit credit card can be used for a range of eligible health, wellness and veterinary expenses at participating providers, including:

• Dental care
• Vision care
• Veterinary care
• Cosmetic procedures
• Dermatology
• Hearing care
• Medical procedures
• Wellness services
• Some out-of-pocket healthcare expenses

Who the CareCredit credit card may be useful for

The CareCredit credit card may be a good fit for consumers who:

• Have an eligible healthcare or wellness expense
• Are using a participating provider
• Understand the promotional financing terms
• Can pay off the balance before any deferred interest deadline
• Prefer a healthcare-specific credit line over a general-purpose credit card
• Want to avoid taking out a larger personal loan

Who the CareCredit Pay Later loan may be useful for

The CareCredit Pay Later loan may be a good fit for consumers who:

• Have an eligible healthcare or wellness expense that is large or more defined
• Are seeking a one-time-use loan that closes once paid in full
• Prefer predictable monthly payments and a defined payoff timeline
• Want to avoid surprise fees through a fixed APR and loan term

CareCredit advantages

For eligible health and wellness expenses, CareCredit financing options offer several features that may help you manage out-of-pocket costs:

Consumer Checklist Before Borrowing

Before choosing a personal loan or credit card, consider these questions about the cost, repayment terms and potential impact on your finances:

• What is the APR?
• Is the rate fixed or variable?
• Are there promotional financing terms?
• Is the promotion true 0% APR or deferred interest?
• What monthly payment is required to pay it off on time?
• Are there fees? How much are they?
• Will this affect my credit score?
• Can I afford the payment if my income changes?
• What happens if I miss a payment?

Choosing the Financing Option for Your Health and Wellness Costs

Personal loans and credit cards can both help you manage health and wellness expenses, but the option you select depends on what you’re paying for and how you plan to repay it. A personal loan may make sense for a large, one-time expense when you prefer fixed monthly payments and a defined payoff schedule, while a credit card may offer more flexibility for ongoing or shorter-term expenses. Comparing the terms, fees and repayment requirements of each option can help you choose an approach that works for your care wants or needs and your budget.

Frequently Asked Questions About Personal Loans and Credit Cards

Do you still have questions about personal loans and credit cards? Here are answers to some frequently asked questions.

Managing Health and Wellness Costs With the CareCredit Credit Card

If you are looking for an option to help manage your health and wellness costs, consider financing with the CareCredit credit card.* Get the care you want or need with easy, flexible financing options that allow you to pay for out-of-pocket expenses over time. Use our Acceptance Locator to find a provider near you that accepts CareCredit. Continue your wellness journey by downloading the CareCredit Mobile App to manage your account, find a provider on the go and easily access the Well U blog for more great articles, podcasts and videos.

Your CareCredit credit card can be used in so many ways within the CareCredit network, including vision, dentistry, cosmetic, pet care, hearing, health systems, dermatology, pharmacy purchases and spa treatments. How will you invest in your health and wellness next?

Author Bio

Dawn Papandrea is a journalist with more than two decades of experience covering personal finance and consumer issues. She has written for leading financial publications and organizations, including U.S. News & World Report, Investopedia, Bankrate and others.