Holiday shopping started early this year. According to a Bankrate survey, 50 percent of consumers already started crossing items off their lists, or plan on doing so by Halloween. Almost half of respondents are planning to use cash, however, 29 percent will be financing their purchases to have more time to pay them off.

Both personal loans and credit cards can be used to pay for your holiday purchases if you’re short on cash and want to take advantage of deals early on, though you’ll be paying more for the gift due to interest. That said, both have their perks and drawbacks that are worth considering before deciding on one.

Pros and cons of using a personal loan for holiday shopping

When it comes to holiday shopping, personal loans aren’t really the norm. After all, they don’t offer some of the flashy perks credit cards do. However, they may offer other advantages.

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  • Lower interest rates. Personal loans have much lower interest rates than credit cards — some as low as 5.20 percent. Additionally, most personal loans have fixed interest rates, meaning they’re not subject to increases due to market fluctuations.
  • Controlled spending. If you’re looking to stay on a budget, personal loans can help you do just that, as they come in fixed amounts delivered in a lump sum.
  • Predictable payments. Because personal loans have both a fixed interest rate and repayment term, your payments will remain the same over the life of the loan — something many credit cards don’t offer.
  • Versatility. Lenders typically impose very few restrictions on how to use the funds of a personal loan, so you can use the money for pretty much anything. An added benefit is that you’ll have the cash at hand.
  • Could improve your credit. Personal loans can add to both your credit mix and payment history, which account for 10 percent and 35 percent of your FICO score, respectively. That means you could see a boost in your score, just by making timely payments each month.
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  • Fees. Depending on the lender, you may be charged an origination fee of up to 10 percent of your loan amount, or get hit with a prepayment penalty if you pay off your loan early.
  • No rewards. With credit cards, you may get some perks, like cash back or rewards points on purchases. Personal loans don’t offer these.
  • Likely a higher monthly payment. With a personal loan, you will likely have to pay more each month, so you may have less breathing room in your budget if things get tight financially.
  • Fixed amount. A fixed spending amount may be good if you’re on a budget, but it can also be restrictive.

Pros and cons of using a credit card for holiday shopping

Credit cards are America’s darling when it comes to holiday shopping. In fact, according to Bankrate’s survey, 53 percent of holiday shoppers plan to use their credit cards for at least one purchase.

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  • Spend as you go. One of the main advantages of using credit cards, instead of a loan for your holiday spending, is that you get the flexibility to spend as you go. That means you have more wiggle room in your budget.
  • Potential savings. Another unique perk of credit cards is that they give consumers access to exclusive offers, in addition to cash back or rewards points on purchases.
  • Flexible payment options. Credit cards give you the option to pay a minimum amount each month, which represents a portion of your balance, plus any interest. However, you can also pay it in full each month without facing any penalties.
  • You could avoid interest. If you have excellent credit and can qualify for a 0 percent introductory offer you could avoid paying interest altogether while the offer is in effect. With most cards, you can also avoid paying interest by not carrying a balance.
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  • Higher interest rates. The average credit card has an interest rate of nearly 21 percent, which is rather steep. This interest is also subject to market conditions, meaning they can go up. This can make it more difficult to get out of debt if you’re carrying a balance.
  • Overspending. A credit card’s flexibility can also be its biggest disadvantage. If you aren’t keeping close tabs on your balance, you could end up getting carried away and find yourself in a tricky situation by spending too much.
  • Could impact your credit. Credit cards can increase your credit utilization ratio. Credit utilization accounts for 30 percent of your FICO score. That means your score could see a dip if your balances are too high.
  • Can lead to a debt cycle. Because credit cards only require you to pay a percentage of your balance each month, it can be tempting to just pay the minimum amount to keep more cash in your pocket. This can lead to piling tons of debt in the long term, which affects your credit health and your finances.

Should you use a loan or a credit card for your holiday spending?

Cash will always be the best option when it comes to nonessential purchases. By using cash you’ll avoid adding to your debt and won’t pay more for your purchase due to interest. If you do choose to finance your holiday spending, consider which product best fits your needs.

Both personal loans and credit cards can offer unique advantages if you need a solution to finance your holiday spending. That said, personal loans may be a better fit if you have good or excellent credit and have a budget set in stone.

You’ll likely get a lower interest rate than with a credit card if you have the finances to qualify, and you’ll protect yourself from any future interest rate increases. Personal loans can also be a good idea if you’ve struggled with sticking to a budget in the past, as you only get a fixed amount and can’t overspend.

Credit cards, on the other hand, require more self control. If you don’t have a habit of overspending or carrying a balance, then credit cards could be a cheaper option than personal loans. That’s because you could avoid paying interest altogether by paying your balance in full each month, plus maximize your savings through cash back, rewards and more.