Personal Loan or Credit Card: How Should I Finance My Black Friday Spending?

Nadav Shemer
Credit cards vs personal loans: Which is the better option?
In what has turned into an annual occurrence, Americans are expected to spend a record amount this Black Friday shopping period. Households will spend $1,496 on average this holiday season, the bulk of it on Black Friday and Cyber Monday promotions, according to Deloitte’s annual holiday retail study.

Type Black Friday into Google and you’ll find thousands of websites devoted to finding you the best deals. But for a significant portion of U.S. households, an equally important question is: “How do I finance my Black Friday spending?” Two of the main options are personal loans and credit cards.

The Case for Personal Loans

Top 3 reasons to choose a personal loan over a credit card this Black Friday:

  1. Superior rates
  2. Protects you from overspending
  3. Funds can be used for any purpose

A personal loan from a top provider is an unsecured loan that can be taken out for any purpose and ranges from $1,000 to as high as $100,000. Though most personal loans come with a fixed rate, an increasing number of lenders are offering variable-rate loans or loans with flexible eligibility requirements such as lower-than-average credit.

Personal loans usually come with significantly lower interest rates than credit cards, so they can be a very wise method for small shopping expenses that you know you can pay off quickly. The average personal loan rate is around 10% but can drop to 3-4% for borrowers with strong credit. By contrast, the average credit card has 19% interest for new customers, and 15% is considered a good rate.

More often than not, personal loans are unsecured, which means you won’t be asked to put up any collateral. With unsecured loans, you are not at risk of having property seized, but as a result, lenders tend to charge higher interest rates than they would for a secured loan such as an auto loan or home equity loan.

In some ways, personal loans can be similar to auto loans because they tend to have fixed interest rates, fixed payment terms, no penalty for early pay-off, and payment terms of typically between 2 and 5 years. In addition, you typically get the money up front in a single lump sum, within 24 to 72 hours. Once you receive the money, it is yours to use as you please and you don’t have to use it all at once. For example, you might choose to spend half of it on holiday shopping and put the other half away for an emergency.

Lastly, with a personal loan you have a set amount to pay back and a clear, defined payment schedule. You aren't going to suddenly exceed your limit like you might with a credit card. In this way, a personal loan acts as a barrier that protects you from overspending.

The Case for Credit Cards

Top 3 reasons to choose a credit card over a personal loan this Black Friday:

  1. Introductory rates
  2. Consumer protection
  3. Rewards points

Like personal loans, credit cards are a type of unsecured, fixed-rate loan charged at an annual rate known as an APR. When making a major purchase, many people turn to credit cards due to the convenience and often high credit limits that make it hard to say no. Credit cards make buying easy: you pick out a product or service that you want to buy and then you just swipe your card or enter your card details to complete the transaction.

Though credit cards have higher rates than personal loans, there are ways to pay less–or nothing–for a credit card. Many credit card providers offer zero introductory rate deals with 0% APR for the first 12 to 18 months. Many of these offers can be found in the period leading up to Black Friday and Cyber Monday. These offers are only worthwhile if you plan to spend an amount you can pay back within the introductory period–otherwise it ends up being more expensive than a personal loan.

One benefit of credit cards that people generally don’t think about is consumer protection. 

In the U.S., a consumer may file a dispute with their credit card issuer over billing errors, fraudulent purchases, or even if they believe they are owed a refund by a merchant because a product was faulty or was never received. When the credit card issuer rules on the side of the consumer, they process what is known as a ‘chargeback’–a full refund to the consumer.

A final reason to choose a credit card is for the rewards. Credit card providers know their rates are higher than loan providers, so they entice consumers in other ways–namely, rewards points. Spend enough money using your credit card this holiday season and you may just earn yourself enough points or miles to take a post-shopping winter vacation.

Personal Loans vs. Credit Cards: Who Wins?

Like most consumer finance decisions, there is no correct answer to this question. Both personal loans and credit cards offer strong advantages and disadvantages, namely cost vs convenience. If the convenience of swiping a card and having a product magically appear at your doorstep is what’s most important to you, then a credit card is your best friend. But if you want protection against overspending, or you want to get through Black Friday without wasting too much on lender rates, a personal loan is the superior option.

Whether you choose a personal loan or credit card this Black Friday / Cyber Monday shopping season, remember: always compare a few providers before signing up. Everyone knows comparison shopping is the best way to find great deals from retailers during the holidays. The same goes for personal loans and credit cards: comparison shopping is the best way to find low rates, flexible repayment terms, and great introductory offers.

Nadav Shemer
Nadav Shemer specializes in business, tech, and energy, with a background in financial journalism, hi-tech and startups. He enjoys writing about the latest innovations in financial services and products.