Personal loans usually cost less than credit cards, but only if you can may have access to for a lower rate

A personal loan can lower your total interest cost compared to credit card debt, but the math depends on three things: the rate you actually get offered, how long you take to repay, and whether you'll rack up new credit card balances after you pay off the old ones. Personal loans have fixed rates and fixed payoff dates. Credit cards have variable rates and no required payoff date, which means interest compounds indefinitely if you only make minimum payments. If you get a personal loan rate below your credit card rate and commit to not using the cards again, a loan usually wins. If you can't get a better rate, or if you'll keep spending on the cards, a loan just moves the problem around.

The decision also depends on your credit score and income. Lenders price personal loans based on how risky they think you are, so two people borrowing the same amount can get rates that differ by 20 percentage points or more. You have to get actual quotes to know whether a loan beats your card rate.

Key Takeaways

  • Personal loan rates range widely based on your credit score, income, and the lender — you have to get an actual quote to know if it beats your card rate.
  • A personal loan forces a fixed payoff date, while credit cards let you carry a balance indefinitely, which costs far more over time.
  • Taking out a personal loan does not stop you from using credit cards again, so the debt often grows back unless you change spending habits.
  • Personal loans show up on your credit report as a new account and a hard inquiry, which can temporarily lower your credit score even if the loan itself helps long-term.
  • Balance transfer cards with 0% introductory rates can cost less than a personal loan if you can pay off the balance before the rate jumps.

How personal loan rates compare to credit card rates

Credit card rates typically range from 18% to 24% for most borrowers, though some cards charge higher rates and a few offer lower ones to people with excellent credit. Personal loan rates vary much more widely — from around 6% to 36% depending on the lender, your credit score, your income, and the loan term. If you have a credit score above 700 and stable income, you might get a personal loan rate in the 10% to 15% range, which beats most credit cards. If your score is below 650, personal loan rates climb into the 25% to 36% range, which may not save you money at all.

The only way to know your actual rate is to get quotes from multiple lenders. Banks, credit unions, and online lenders all price differently. A credit union often offers lower rates to members than an online lender will. Shopping around takes 15 to 30 minutes and involves a hard inquiry on your credit report from each lender you contact — multiple inquiries within 14 to 45 days usually count as one inquiry for credit scoring purposes, so the damage is limited if you shop quickly.

The fixed payoff date versus minimum payments

A personal loan has a set term — usually 24, 36, 48, or 60 months — and a fixed monthly payment. You know exactly when the debt ends and how much you'll pay in total interest. If you borrow $10,000 at 12% over 36 months, your payment is about $332 per month and you'll pay roughly $1,950 in interest total.

Credit card minimum payments are typically 1% to 3% of your balance, which means you're mostly paying interest and barely touching the principal. If you carry that same $10,000 on a 20% credit card and pay only the minimum, it takes roughly 6 years to pay off and costs about $6,000 in interest — three times as much. Many people never pay off credit card balances at all, so interest accrues indefinitely. A personal loan removes that trap by forcing a payoff date.

What happens to your credit score when you take out a personal loan

Opening a personal loan triggers a hard inquiry, which typically drops your score by 5 to 10 points temporarily. The new account itself also lowers your average account age, which can drop your score another few points. These effects fade within a few months as you make on-time payments.

Over time, a personal loan can actually improve your credit score because it adds a different type of debt (installment debt) to your report, which shows lenders you can handle multiple kinds of credit. Making consistent on-time payments on the loan builds positive history. However, if you use the personal loan to pay off credit cards and then run those cards back up, your score will be worse than before — you'll have both the new loan and the new card balances.

The risk of taking out a loan and keeping the credit cards open

Many people borrow a personal loan to pay off credit cards, then keep the cards open and start using them again. This is the most expensive mistake. You now have both the personal loan payment and new credit card debt, so your total monthly obligations grow. Your credit utilization ratio — the amount of credit card debt compared to your total credit limits — also climbs, which lowers your score and makes future borrowing more expensive.

If you take out a personal loan, you need a concrete plan for the credit cards: close them, freeze them, cut them up, or commit to not using them. Some people move the cards to a drawer and use them only for one small recurring charge (like a streaming service) to keep the accounts active without accumulating debt. The loan only works if you stop the behavior that created the debt in the first place.

Balance transfer cards as an alternative to personal loans

Some credit cards offer 0% introductory rates on balance transfers for 6 to 21 months, depending on the card. If you transfer a $10,000 balance to a card with 0% for 12 months, you pay no interest during that time — you only pay the balance transfer fee, which is usually 3% to 5% of the amount transferred. That's $300 to $500 upfront, but if you can pay off the full balance within the promotional period, your total cost is just the fee.

A balance transfer card beats a personal loan if: you have decent credit (usually 670 or higher), you can pay off the balance before the promotional rate ends, and you won't use the card for new purchases during the 0% period. If you can't pay it off in time, the regular rate (usually 18% to 24%) kicks in and you're back where you started. A personal loan is safer if you need more time to repay or if you can't trust yourself not to use the card again.

When a personal loan is the wrong choice

A personal loan does not make sense if: your credit score is so low that the loan rate is higher than your credit card rate; you have no plan to stop using the credit cards; you're already struggling to make monthly payments and adding another payment will strain your budget further; or you're considering a loan from a predatory lender that charges fees beyond the interest rate.

Some personal loans come with origination fees (1% to 10% of the loan amount), prepayment penalties, or other hidden costs. Read the loan agreement carefully and calculate the true cost before signing. If the total interest plus fees is close to what you'd pay on the credit card, the loan saves little or nothing. A lender that won't disclose all fees upfront is a sign to walk away.

Frequently Asked Questions

Will paying off my credit cards with a personal loan hurt my credit score?

Yes, initially. The hard inquiry and new account will drop your score by 5 to 15 points temporarily. However, paying off the credit cards lowers your utilization ratio, which helps your score. Over several months of on-time loan payments, your score usually recovers and ends up higher than before — but only if you don't run the credit cards back up.

Can I get a personal loan if I have bad credit?

Yes, but the rate will be high — often 25% to 36%. At that rate, a personal loan may not save you money compared to a credit card. Some credit unions offer personal loans to members with lower scores at better rates than online lenders. Check with your bank or local credit union before accepting a high-rate offer.

What if I can't afford the personal loan payment?

Contact the lender immediately. Some offer hardship programs that temporarily lower or pause payments. Missing payments damages your credit score and can lead to collection action. A personal loan is only worth taking if you're confident you can make the monthly payment consistently.

Should I close my credit cards after paying them off with a personal loan?

Closing old cards lowers your average account age and reduces your total available credit, both of which can hurt your score. Keeping them open but unused is usually better for your credit. The real question is whether you'll use them again — if you will, closing them removes the temptation.

How long does it take to get a personal loan?

Most online lenders fund loans within 1 to 5 business days after approval. Banks and credit unions may take 5 to 10 business days. Some lenders offer same-day or next-day funding for an extra fee. The application itself usually takes 15 to 30 minutes online.