What is this comparison for?
Many people ask whether a personal loan can pay off a credit card. The answer depends on the rates, the fees, and how long the loan runs. A personal loan is a fixed amount repaid over a set term, while a credit card is a revolving line where the balance can rise and fall. The loan article on Wikipedia defines a loan as money lent with an agreement to pay it back, usually with interest for the use of the money.
This calculator puts the two side by side for the same balance. It shows the loan payment, the time the card takes to clear at the payment you make now, and the total cost of each path, so the decision rests on the full cost rather than on the monthly figure alone.
How does a credit card balance grow?
Card issuers typically charge interest on the balance from the date of each purchase when the balance is not paid in full. The credit card article on Wikipedia describes this, and it explains why a balance can keep growing even while payments are made. A payment that is smaller than the interest added each month leaves the balance unchanged or rising.
The card side of the calculator works month by month. Each month, interest is added at the card rate, and the payment you enter is taken off the balance. If the payment never exceeds that monthly interest, the calculator reports that the card never clears.
How do I enter the card side?
Enter the balance you owe, the annual rate from your statement, and the monthly payment you make now. Use the rate that applies to the balance you are carrying, not a promotional rate that has since ended. If you make only the minimum payment, enter that amount so the comparison matches your current plan.
The calculator assumes you make the same payment each month and add no new charges to the card. If you keep using the card, the real balance may fall more slowly than shown, so treat the card result as a more favorable picture of your current plan than real life may give.
How do I enter the loan side?
Enter the rate the lender offered, the term in years, and any fee added to the loan. The loan amount is the card balance plus the fee, because a financed fee is part of what you borrow. The monthly payment is then the level payment that repays that amount over the term at the rate you entered.
A longer term lowers the monthly payment but usually raises the total cost, because interest runs for more months. Test a few terms and compare the total cost and the payment each one produces before choosing.
Why do fees change the answer?
Personal loans often carry an origination fee, which is either paid upfront or added to the loan. A fee is a real cost. When it is added to the loan, you pay interest on it as well, so it raises the total you repay. The loan cost on the results includes that effect.
Compare offers by the total cost, not only by the rate. Two loans with the same rate can cost quite different amounts once their fees are counted. Ask the lender to show the fees in writing before you compare.
Monthly payment or total cost?
A lower monthly payment can look like the better deal, but it can hide a higher total cost. A loan with a long term may make the monthly figure easy to manage while the interest adds up over years. A card with a high rate may look expensive each month and still clear sooner than a long loan would.
Use both numbers. The monthly payment tells you whether the budget can carry the loan. The total cost tells you which path costs less. The verdict line on the results compares the two totals directly.
When could a loan help?
A personal loan can help when the card rate is high, the balance is large, and the loan rate is clearly lower after fees. A fixed schedule also has a clear end date, which can make payoff easier to plan. For some people, the fixed payment is easier to keep than a card minimum that changes as the balance falls.
A loan can also help when it replaces several cards at once and simplifies the payments, as long as the total cost is lower. The debt consolidation calculator on this site covers that case in more detail.
When could a loan be the wrong choice?
A loan may cost more if the rate is close to the card rate, if the fee is large, or if the term is long enough that interest adds up. A loan can also be a poor fit when the card stays open and new charges build up again, because then you carry the loan and the card at the same time.
If the loan is secured by property or a car, missed payments can have serious consequences. Check whether the loan is secured before you compare it with an unsecured card.
What does the calculator leave out?
The calculator does not know the rate you would be offered, whether you qualify for a loan, or the penalties on the card. It assumes a fixed loan rate and a fixed card rate, and it does not model promotional periods, penalty rates, or changes to the minimum payment rule.
It also does not include taxes, the effect on your credit report, or any cost of closing the card. Treat the results as an estimate, and ask the lender for a written offer before you decide.
Reading the worked example in words
Picture a balance that is large enough to matter, carried on a card with a high rate, with a payment that covers the interest but barely reduces the balance. The card path takes a long time, and the interest paid along the way can be bigger than the balance itself. That is the situation this comparison is built to show.
The loan path sets a fixed payment over a fixed term. The fee is added to the amount borrowed, so it shows up in the total cost. The verdict line compares the two totals, and the payment line shows whether the new monthly figure fits the budget. Both numbers matter, and neither one should decide the question on its own.
Change one input at a time to see what drives the result. A lower loan rate or a shorter term changes the total more than a small change in the fee, for many inputs. Testing each one shows where a better offer would make the biggest difference.
Where should I go next?
If you are planning to pay down the card without a loan, the debt payoff calculator shows the payoff time and interest for the card alone. If you have several cards, the debt snowball calculator and the debt avalanche calculator compare ways to order the payments.
