Personal loan vs credit card: Which is more affordable in 2025?

If you need funds, you’re likely exploring credit options, two of which are credit cards and personal loans.

You’ve also likely wondered which option is more affordable. The answer depends on several factors, including interest rates, repayment terms, fees, and your credit profile. Both options have their pros and cons, and choosing the wrong one could result in more expenses than you expect.

In this article, we ask the experts to break down the true cost of borrowing, and how to know which option will best suit your pocket and personal circumstances.

Ready to check your creditworthiness with JustMoney? Register and see if you qualify for good rates.

What to know about credit 

Before deciding between a personal loan and a credit card, it’s important to understand how credit works.

Credit allows you to borrow money with the agreement that you’ll repay it over time – usually with interest and fees. The type of credit you choose affects how much you’ll repay, how flexible your repayments are, and how your credit score may be affected.

Knowing the basics can help you make a more informed and cost-effective choice.

What is a credit card?

A credit card lets you borrow money from the issuing bank or lender to pay for goods and services.

It works through a payment network like Visa, Mastercard, or American Express, which makes it possible to use your card both locally and internationally, wherever that network is accepted.

A credit card offers revolving credit, meaning you can borrow repeatedly up to your credit limit and only repay what you use.

Not all credit cards have the same features, benefits and costs, however. Find out which credit card is best for you.

What is a personal loan? 

A personal loan is a fixed amount of money that you borrow from a bank, credit provider, or lender and repay in regular instalments over a set period – usually between six and 72 months.

“Personal loans typically offer fixed interest rates, which allow for fixed repayments over the loan term,” says Alpheus Legodi, product head of FNB Loans. “Rates will therefore not change with changes in the repo rate throughout the term, which offers customers protection during a rising rate cycle.”

What’s cheaper: A personal loan or a credit card?

When it comes to affordability, the right choice depends on your spending habits and financial needs.

One product isn’t always “cheaper” than the other – it’s about how you use them.

While personal loans often look more expensive at first glance because of initiation and monthly fees, the total cost can end up being lower than a credit card if you’re repaying over many months.

On the other hand, credit cards can be cheaper if you repay in full within the interest-free period.

When is a credit card cheaper?

Credit cards typically offer lower interest rates compared to personal loans, in line with National Credit Act (NCA) regulations, says Thabiso Tshabalala, product head of FNB Credit Card. However, interest rates vary by lender and credit profile.

A credit card is often the more affordable option for short-term spending, provided you’re disciplined. Many credit cards offer an interest-free period of up to 55 days on purchases. “If you pay your credit card off in full each month, it can be interest-free,” notes Jaco Prinsloo, senior financial planning consultant at Alexforbes.

The flexibility of a credit card can be a pitfall, however. If you only pay the minimum amount due, the interest on your outstanding balance can quickly become overwhelming, making it a very expensive form of credit.

When is a personal loan cheaper? 

Personal loans are generally more affordable for large, unplanned purchases that you need a longer period to repay, such as for home improvements or consolidating other debts.

They offer a clear structure that many people find easier to manage. You receive a lump sum and repay it with fixed monthly instalments over a set term. This predictability helps with budgeting and ensures you have a clear end date for your debt.

“Think of it as a meal plan versus an all-you-can-eat buffet – structure helps with discipline,” says Prinsloo.

However, loans can be expensive if you don’t shop around or if you repay slowly.

Tips for choosing the right solution

Ultimately, it’s your financial discipline that makes more of a difference than any product itself.

Before choosing the right solution for you, it’s wise to compare multiple offers. Always look at the total cost of credit (interest, initiation fees, monthly fees, and insurance) to make the best decision for your situation.

2025 quick-fire cost comparison 

Here’s a side-by-side comparison of the key cost factors.

The information above is based on data obtained from major South African Banks and other registered lenders.

How personal loans and credit cards work

Personal loans and credit cards work somewhat differently. Let’s examine how each functions.

How does a personal loan work? 

A personal loan is a form of instalment credit that allows you to borrow a specific amount of money from a credit provider or financial institution and repay it – with interest – over a set period, in monthly instalments.

There are generally no penalty fees for early settlement of a small personal loan, says Legodi – in fact, you may save on interest when settling early. However, check your loan terms as the NCA allows for early settlement charges on large loans, or when late notice is given.  

Key characteristics of personal loans:

• Fixed loan amount: You receive a lump sum upfront (could range from R1,000 to R500,000, depending on the lender and purpose).
• Fixed repayment schedule: Equal monthly payments over a predetermined period (around six to 84 months).
• Unsecured lending: Most personal loans don’t require collateral, such as a house or car as security.
• Single-use credit: Once you’ve received and spent the money, you can’t re-borrow without applying for a new loan.
• Predictable costs: The total amount you’ll repay is calculated and known from the start.

Personal loans are often used for larger planned or unplanned expenses, including medical costs, car or home repairs, home renovations, moving expenses, funeral costs, debt consolidation, or emergencies.

Personal loans are also suitable if you prefer fixed instalments and don’t want the temptation of reusing funds you’ve repaid, as you might with a credit card or revolving structure. This can prevent you from getting trapped in a debt cycle.

“Loans can also be used to consolidate debt – combining multiple debts into one manageable payment – for people who want to unlock monthly cash flow,” says Legodi.

How does a credit card work?

A credit card provides revolving credit, meaning you’ll have ongoing access to a credit facility up to your approved limit, and you borrow, repay, and borrow again as needed. “Customers typically have up to 55 to 57 interest-free days on their credit card, which helps them not pay interest on their outstanding balances,” says Tshabalala.

Credit cards work through major networks like Visa, Mastercard, or American Express, allowing you to use them locally and internationally, wherever these networks are accepted. You also have fraud protection on a credit card – an essential feature as credit cards are susceptible to fraud.

Key characteristics of credit cards:

• Credit limit: You’re approved for a maximum borrowing amount (typically R90,000 to R500,000, depending on the bank).
• Flexible usage: You can spend up to your limit, repay, and spend again.
• Interest-free periods: Up to 55 to 57 days interest-free on purchases if you pay the full balance.
• Minimum payment: You can pay just the minimum monthly amount (typically around 3 to 5% of the straight facility outstanding balance) and carry the rest forward. Note, however, that if you pay only the minimum each month, you forfeit the interest-free period offered. Interest is calculated daily on your outstanding balance – and this will lessen if you pay more each month, as doing so lowers the outstanding balance. 
• Pay in full: Avoid interest charges completely by paying your full balance within the interest-free period.
• Partial payments: Pay any amount between the minimum and full balance.
• Ongoing facility: No fixed end date – the credit remains available as long as your account is active.

Another key characteristic of credit cards is the repayment flexibility they offer. 

Credit cards are often used for everyday purchases, such as fuel, groceries, and clothes, and larger purchases, such as furniture, devices, and appliances.

They’re also used for online shopping, travel bookings, emergency expenses, building credit history, taking advantage of rewards programmes, and short-term financing for purchases you can pay off within the interest-free period.

“Credit cards offer the flexibility to access credit again, once full or minimum repayment has been made to your credit card accounts,” says Tshabalala.

“However, you should avoid withdrawing cash from your credit cards as interest is charged from day one – and avoid ‘maxing out’ your credit limit, as this can incur high repayments.”

Loans vs credit cards in brief

The table below provides a quick snapshot of what to know about personal loans and credit cards.

 Want to apply for a personal loan or credit card? Register with JustMoney to get started and see if you qualify.

The cost of borrowing in 2025

As of 1 August 2025, the South African Reserve Bank (SARB) repo rate stands at 7% and the prime lending rate at 10.5%.

Both personal loans and credit cards offer personalised interest rates, meaning the rate you receive depends on your individual financial profile. Lenders don’t offer one-size-fits-all pricing – instead, they assess your risk level and adjust rates accordingly.

Factors that determine your interest rate

Your interest rate depends on your financial profile, says Prinsloo. This includes:

• Your credit score: A higher credit score means you’re more likely to qualify for rates closer to the advertised minimums. A poor credit score means you’ll face higher rates or struggle to qualify.
• Income and employment: Stable, verifiable income can secure better rates.
• Your debt-to-income ratio: Lower existing debt relative to your income improves your rate prospects. Lenders want to see that you can comfortably afford new repayments.

“To keep rates low, always pay on time and borrow only what you need,” says Prinsloo.

Three typical borrowing scenarios

Let’s look at some real-world scenarios to see how personal loans and credit cards compare. We’ll use the current prime rate (10.5%) as our base for calculations. 

Scenario 1: R50,000 once-off loan (home renovation)

Lerato and Katlego want to give their home some TLC – it needs painting and some repairs done.

Personal loan option:

Amount: R50,000

Estimated rate: 15.5% (prime + 5% margin for good credit)

Term: 36 months

Monthly payment: R1,745.53

Monthly service fee: R69

Total monthly cost: R1,814.53 (R1,745.53 + R69)

Total repayment: R66,523.08 (R1,814.53 x 36) + R1,200 initiation fee
Interest paid (loan only): R12,839.23

Credit card option:

Amount: R50,000

Estimated rate: 18% (typical credit card rate based on prime + 7.5% margin)

Monthly repayment: R1,807.62

Monthly card fee: R69

Total monthly cost: R1,876.62 (R1,807.62 + R69)

Total repaid (if paid off in 36 months): R67,708.13 (R1,876.62 x 36 + R150 initiation fee)

Interest paid (card loan only): R15,074.31

Winner: A personal loan will save Lerato and Katlego approximately R62.09 a month and approximately R1,185 over 36 months compared to a credit card.

Scenario 2: R5,000 monthly recurring spend (small business expenses)

Alex is expanding his business and needs to make some regular purchases to do so. What are his credit options?

Personal loan option:

Not suitable – personal loans provide lump sums, not ongoing credit. Alex would need to apply for a new loan each time he needs funds.

Credit card option:

• Monthly spend: R5,000
• Strategy: Pay in full within a 55-day interest-free period
• Monthly interest cost: R0 interest + monthly card fee (around R69-R99)
• Monthly card fee: R69
• Annual cost: Monthly fees only (around R828-R1,188)
• Benefits: Rewards programmes, purchase protection, convenience, ongoing access to credit

Winner: A credit card is the only practical solution for recurring expenses, especially if Alex can pay within the interest-free periods. However, Alex must pay the full statement balance each month to avoid interest from the statement date.

Scenario 3: R80,000 debt consolidation (multiple store cards and loans)

John is struggling with debt, paying R3,200 a month across various high-interest debts, with rates ranging from 22-28%. Will a personal loan or a credit card help?

Debt consolidation loan option:

Amount: R80,000

Estimated rate: 16.5% (prime 10.5% + 6% margin for average credit with existing debt)

Term: 60 months

Monthly repayment (capital and interest): R1,966

Monthly service fee: R69

Total monthly cost: R2,035

Total repaid (including monthly fees): R122,100 (R2,035 x 60)

Interest paid (loan only): R37,960 (R1,966 x 60) – R80,000

Upfront costs: R1,400 initiation fee 

Credit card option (balance transfer):

A balance transfer allows you to move money you already owe on one credit card to another credit card – usually one offering a lower rate or a special promotional rate. Find out if your bank offers you this option.

Amount: R80,000

Estimated rate: 19-22% (prime 10.5% + 8.5-11.56% margin – the typical credit card range)

Monthly card fee: R69

Risk: Without discipline, John’s debt could increase

Minimum payments: Could extend repayment indefinitely

Not recommended for debt consolidation.

Winner: In this case, a debt consolidation loan provides structured debt elimination and immediate monthly savings of over R1,160 (R3,200 – R2,035). However, a genuine promotional balance-transfer rate could come in lower than the consolidation rate, so shop around.

“Consolidating multiple high-interest balances into a single loan can lower your total cost of credit if the new loan’s interest rate and fees are below the average of your existing debts,” Legodi points out. “This may free up cash flow – but you should factor in the effect of extending the repayment term on the total interest paid.”

John could also consider debt counselling through a registered debt counsellor as he is struggling with debt and may be considered overindebted. This is a formal process under the NCA that can provide legal protection and potentially better terms than consolidating your debt with a loan.

Note: All calculations in the above scenarios are estimates based on the prime rate of 10.5% (August 2025) plus typical lender margins. Your actual rates may vary based on credit profile, lender, and current market conditions. Always request personalised quotes from multiple lenders before making decisions.

Ready to calculate your own scenario?

If you need credit but don’t know where to start, run some numbers using JustMoney’s helpful calculators.

Need a car loan? Our vehicle finance calculator helps you compare financing options for car purchases.

Register on the JustMoney platform – you can apply for credit for online shopping from Mobicred, along with other credit facilities.

Credit score impact and credit approval factors

Applying for a credit card will trigger a credit bureau enquiry, causing a short-term dip in your credit score, says Tshabalala.

“By keeping your revolving debt utilisation low, making every payment on time, and maintaining a balanced mix of instalment loans and credit lines, you can quickly recover and even strengthen your credit profile over time.”

Missing a payment will affect your credit score as late payments are reported to credit bureaus, typically after 30 days.

Credit utilisation ratios

The way you use credit cards versus personal loans affects your credit score differently. Your credit utilisation ratio – the percentage of total available credit you’re using – is a key factor.

Credit card utilisation

Your credit utilisation ratio is calculated by dividing your outstanding balance by your credit limit. For example, an outstanding balance of R15,000 on a R50,000 credit card represents 30% utilisation.

High utilisation can affect your credit score, even if you make minimum payments on time.

Personal loan utilisation

Personal loans offer instalment credit and don’t have a utilisation ratio. Making regular payments on time will help build a positive payment history, and the fixed nature of personal loans can help stabilise your credit profile.

Minimum credit score requirements

When you check your score on JustMoney, you’ll be given a score of between 0 and 100.

Here’s a table showing what your score means.

901 to 999: Excellent
851 to 900: Good
801 to 850: Okay
601 to 800: Needs work
3 to 600: Not good
0 or 1 to 2: Not enough information to score

Lenders will take your credit score range into account when deciding on credit approval. Generally, the higher your score, the better.

National Credit Regulator (NCR) guidance and consumer protection

As per the NCA, credit providers may determine their own scoring mechanisms or models, but they must adhere to responsible lending practices.

7-point checklist to choose the cheaper credit option

Before committing to a personal loan or a credit card, run through this checklist to identify which option will cost you less and suit your financial situation.

1. Check your budget first
   Use the JustMoney budget calculator to see what you can realistically afford each month. This helps you avoid overcommitting and risking late payments.
2. Compare interest rates side by side
   Get personalised quotes from at least three lenders. Even a 2% difference in rates can mean thousands of rands saved over time.
3. Add up all fees
   Factor in initiation fees, monthly service fees, credit facility fees, and any insurance costs. The “cheaper” interest rate can quickly become more expensive once these are included.
4. Check repayment flexibility
   If you need predictable costs, a fixed-term personal loan might be best. If you need ongoing access to funds and can pay in full each month, a credit card with an interest-free period could save you more.
5. Consider the impact on your credit score
   High credit card utilisation can lower your score, while a personal loan (if paid on time) can build positive history. Choose the option that supports your long-term credit health.
6. Match the solution to the purpose
   For one-off big expenses, a personal loan is often cheaper. For smaller, regular expenses you can pay off quickly, a credit card may win – especially with rewards and protection features.
7. Plan for the worst-case scenario
   Ask yourself: if I lose income for three months, can I still manage the repayments? If not, reduce the amount borrowed or explore other solutions before applying.

Credit mistakes to avoid

Some credit habits can trip you up, says Prinsloo. These include:

• Using credit to spend more than you can afford
• Paying only the minimum amount due on credit cards
• Consolidating your debt but not changing your spending habits
• Using credit for feel-good purchases or retail therapy

“The key is to know your spending habits, set limits, and automate payments if possible,” says Prinsloo. “If you’re unsure, a registered financial planner can help guide you.” He notes that debt shouldn’t be viewed as a bad thing. “It’s how you use it that matters,” he explains.

Expert insights 

“Just as with retirement planning, choosing the right credit tool depends on your goals, habits, and financial situation. A good plan helps you borrow wisely, stay on track, and sleep better at night.” – Jaco Prinsloo, senior financial planning consultant, Alexforbes.

“By keeping your revolving debt utilisation low, making every payment on time, and maintaining a balanced mix of instalment loans and credit lines, you can quickly recover and even strengthen your credit profile over time.” – Thabiso Tshabalala, product head of FNB Credit Card.

FAQs

Which option is usually cheaper for a one-off purchase – a personal loan or a credit card?

A credit card may be more affordable if you can pay the balance in full within the interest-free period (usually 55 days), since the effective cost can be near zero. However, if repayment takes multiple months, the compounding interest can make credit cards significantly more expensive than a fixed-rate personal loan.

What is the maximum interest rate a South African credit card can charge in 2025?

Under the NCA, credit cards are classified as credit facilities. The maximum interest rate is linked to the repo rate plus 14%. With the current repo rate at 7%, the legal cap is 21% per year. Credit providers cannot exceed this cap by law, though they can charge less.

How does my credit score influence the rate I receive on a personal loan versus a credit card?

While your credit score influences the interest rates and approval chances for both personal loans and credit cards, personal loans usually have fixed interest rates tailored to your credit profile, meaning a good score locks in a lower, predictable rate for the loan term.

Credit cards, however, have variable, revolving credit rates that can be higher and fluctuate, especially for lower scores, and your credit score also affects your credit limit and eligibility for perks. In both cases, a better credit score means better rates and terms.

Can I settle a personal loan early without penalty fees?

Yes, generally you can settle a personal loan early without penalty fees, but certain conditions apply under the NCA. According to NCR guidelines and the NCA, lenders may charge an early settlement penalty on a large loan (above R250,000), but this can’t exceed three months’ interest on the outstanding balance.

Some lenders may reduce or waive this fee if you give them advance notice. Fees vary according to lender, so always check your loan’s agreement terms and conditions.

When does it make more sense to use a credit card instead of a personal loan?

Choosing between a credit card and a personal loan depends on your spending needs, repayment ability, and financial goals. Generally, it makes more sense to use a credit card instead of a personal loan when you have small, recurring, or everyday expenses, you can pay off the balance in full each month, and you want short-term flexible borrowing without fixed monthly repayments.

Tip: Download the JustMoney app (Android only) and learn how to save and invest.