Need to borrow money? Before choosing a credit card or payday loan, it’s worth understanding how different types of borrowing work and which could suit your circumstances.

If you need to spread the cost of an unexpected expense, make a larger purchase or consolidate existing borrowing, you may be considering a personal loan or credit card.

Both provide access to credit, but they work differently. A credit card can be useful for smaller purchases or borrowing that can be repaid quickly. A personal loan can offer a more structured way to borrow a set amount and repay it over an agreed period.

If you're considering a payday loan because you need money quickly, it's also important to compare the total cost of borrowing and whether the repayments are affordable.

Personal loan vs credit card: what's the difference?

A personal loan usually gives you a fixed amount upfront, which you repay through agreed instalments over a set period.

A credit card provides a revolving credit limit. You can borrow, repay and borrow again, provided you stay within your limit.

A personal loan therefore gives you a clear repayment schedule and end date, whereas credit card borrowing can continue if you keep using the available credit.

Experian describes personal loans as particularly suited to larger, planned purchases, while credit cards can be useful for smaller or unexpected purchases.

Why might a personal loan be better than a credit card?

There isn't one option that's right for everyone, but a personal loan could be more suitable if you know how much you need to borrow and want a structured repayment plan.

1. You know exactly how much you're borrowing

With a personal loan, you apply for a specific amount.

For example, if you need £2,500 for essential home repairs, you borrow £2,500 and agree how you will repay it.

With a credit card, you have an ongoing credit limit that you can continue to spend against.

2. You have a fixed repayment plan

With a personal loan, you make regular repayments over an agreed term. Once you've made the required repayments, the loan is paid off.

Credit cards work differently. Paying only the minimum can mean it takes much longer to clear the balance and increases the total interest you pay.

3. You have a clear end date

A personal loan gives you a defined repayment term, which can make budgeting easier.

A credit card doesn't have the same fixed end date, particularly if you continue spending while repaying the balance.

That doesn't mean credit cards are always unsuitable. If you can repay the balance in full each month, they can be a useful way to pay for everyday purchases.

Could a personal loan help with debt consolidation?

If you have several debts or credit card balances, you may be considering debt consolidation.

A debt consolidation loan can bring some existing borrowing together into one loan, potentially leaving you with one regular repayment instead of several separate payments.

However, consolidation isn't automatically cheaper. Before applying, compare:

• The interest rate

• The total amount you'll repay

• The length of the new loan

• Any fees or charges

• Whether the repayments are affordable

• Whether extending the repayment period means paying more overall

A consolidation loan can make managing borrowing simpler, but always check the figures before making a decision.

Personal loan vs credit card: a quick comparison

The key is to look beyond the monthly payment and understand the total cost of borrowing.

What about a 0% credit card?

Some credit cards offer 0% interest for a limited period, which can sometimes make them a cost-effective option if you qualify and can clear the balance before the promotional period ends.

However, check the terms carefully. There may be a balance-transfer fee and, once the promotional period ends, the standard interest rate may apply.

If you're not confident you can clear the balance within the promotional period, a personal loan with a defined repayment schedule may be easier to budget for.

What about payday loans?

If you need money urgently, a payday loan or other high-cost short-term credit can seem like an easy solution.

Before applying, make sure you understand exactly how much you'll repay and whether you can afford the repayments.

The Financial Conduct Authority defines high-cost short-term credit as credit with an APR of 100% or more that is intended to be repaid, or substantially repaid, within 12 months. Payday loans are one type of borrowing that can fall into this category.

The FCA has introduced protections including a price cap on high-cost short-term credit.

If you know how much you need to borrow and need time to repay it, it may be worth considering alternatives such as a personal loan before turning to payday lending.

Don't just look at the monthly payment

When comparing borrowing, consider:

APR

The Annual Percentage Rate helps you compare the cost of different credit products.

Total amount repayable

Look at how much you'll pay back overall, including interest and applicable charges.

Repayment term

A longer term can reduce your monthly payment but may mean paying more interest overall.

Affordability

Make sure repayments fit within your budget after essential bills and living costs.

Could a Boom personal loan be right for you?

At Boom Community Bank, we keep borrowing simple.

We offer one personal loan from £300 to £10,000 that can be used for a wide range of purposes, including debt consolidation.

You could use a Boom loan for:

• Unexpected expenses

• Essential car repairs

• Home improvements

• Larger purchases

• Family expenses

• Debt consolidation

• Other personal needs

We'll consider your individual circumstances, affordability and credit information when assessing your application.

Borrow what you need. Repay over an agreed period. Save as you repay.

Looking for an alternative to payday loans?

If you've been turned down elsewhere or are considering a payday loan because you need to borrow money, don't assume it's your only option.

A Community Bank or credit union may offer an alternative, depending on where you live and whether you meet the relevant eligibility and lending criteria.

At Boom Community Bank, our personal loans are available from £300 to £10,000, with repayment terms of up to 5 years, subject to our lending criteria and affordability assessment.

We also offer Child Benefit Loans for eligible customers and No Interest Loans in certain areas.

Take the time to compare the cost, repayment period and total amount payable before you make a decision.

Personal loan vs credit card: the bottom line

A credit card can be useful when you want flexible access to credit and can repay your balance quickly or in full.

But if you know how much you need to borrow and want regular repayments and a clear end date, a personal loan may be worth considering.

And if you're considering a payday loan, don't base your decision simply on how quickly you can receive the money. Look at the total cost of borrowing and whether you can realistically afford the repayments.

The right type of borrowing depends on your circumstances. The important thing is to understand the cost, compare your options and borrow only what you can afford to repay.