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Personal loan vs credit card: How to pay for holiday gifts?

Holiday Gifts DEC2018 Blog Cover

The holidays can be expensive when buying gifts, hosting parties and travelling. With so many additional expenses, our checking and savings accounts can really take a hit. Plan ahead and consider how a credit card or personal loan may help financially cover the costs. Before making a decision, it’s important to carefully consider the advantages and disadvantages depending on individual financial situations.

Personal Loans

A personal loan can be used to make a big purchase by breaking a large expense into smaller payments over time, which makes the cost more manageable. Before taking out a loan, calculate the loan payment to ensure payments will be affordable. For example, if you borrow $2000 for one year with a personal loan at 2.99% Annual Percentage Rate (APR), your monthly payments will be $169.38 per month.

Advantages of a personal loan:

  • Allows you to stick to a holiday budget since spending is capped at the borrowed amount
  • Offers a fixed interest rate, which tends to be lower than the average credit card interest rate
  • Could be used to pay off high-interest credit card debt
  • Making on-time payments can build a positive credit history
  • You may have more time to repay a personal loan depending on the lending terms

Disadvantages of a personal loan:

  • A credit check is required to ensure borrower has good to excellent credit
  • Borrower will have new debt for long period of time (depending on payment plan)
  • You will have a negative impact on credit score if a payment is late or missed
  • Some institutions may charge a loan origination fee

Credit Cards

Credit cards can provide a convenient form of payment for whatever you buy, whether in person at a store or when shopping online. Your spending habits will determine if using a credit card is right for you.

Advantages of a credit card:

  • Rewards cards allow you to earn either cash back or rewards points
  • Ability to build and maintain good credit by responsibly paying off your balance each month

Disadvantages of credit card:

  • Usually higher interest rates as compared to personal loans. Average credit card rate among the large card issuers is 19% APR.
  • You may accumulate more debt, since you don’t have to pay your balance in full each month
  • The interest and fees you pay can add up if you don’t pay your balance off quickly or on time

Credit cards and personal loans both allow you to borrow money with interest and repay it over time. There are considerable advantages and disadvantages of either choice. However, before making a decision on which is the better option for you, be sure to carefully consider your own credit history and financial situation.  Most importantly, which ever you choose, always make sure you have a plan on how you will make payments.


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Hawaii State FCU firmly believes that financial education empowers people to make smarter decisions throughout their lives, resulting in a better financial future. We do this by providing useful financial tools such as educational blogs, online courses and free webinars on a variety of topics including planning for retirement, debt management and buying a home. For more information on these and other resources, including free financial calculators and budget-friendly recipes, visit and click on “Financial Health.”

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