Credit cards vs. installment loans: which is best for your customers?

Jenna Lee
September 26, 2022
min read

Key summary

  • Some consumers view credit card payments and installment loans as interchangeable financing options — they’re not.
  • Because credit cards often have higher interest rates (average is 19.1%) and a lower borrowing limit (~$5,000 on average), they are usually best suited for smaller purchases.
  • With the right company, installment loans can be a better option when it comes to larger one-off expenses that can’t be paid at once — thanks to lower interest rates and higher borrowing amounts (e.g., Wisetack offers 0% APR* options and loans up to $25,000* for qualified customers). 
  • Explaining to your customers the difference between the two can help them make a better financial decision, which they’ll be grateful for.

A quick comparison

When it comes to paying for goods and services, consumers have more borrowing options than ever. These options typically fall within two categories: credit cards and installment loans.

So which type of financing is better? The answer depends on the situation.

Credit cards are often considered better for smaller everyday purchases that can be repaid quickly. But when it comes to larger one-off expenses, like those your customers are often making when paying for a job, an installment loan can be the better choice if it’s through the right company. (For instance, one that qualifies its borrowers in seconds via a soft credit pull and pays their merchants as soon as the job is completed. #shamelessplug)

Explaining this to customers who may not fully understand the difference between the two can help them pick a payment option that’s better for them, ultimately making them happier customers. Below, we break down both options in more detail to better help you educate your customers.

Credit cards

Credit cards are a type of revolving credit, which means you can use them to borrow repeatedly. Unlike loans, which give you a lump sum up front, each credit card comes with a credit limit, which is basically a pool of money you can borrow from. 

When and when not to use them:

Credit cards are a convenient way to pay for small, everyday expenses that can be paid off quickly — a key reason Americans collectively hold over one billion credit cards. However, due to their frequently high interest rates, they may not be the best option when borrowing larger sums of money that a consumer can’t pay back in one billing cycle. 


  • Ongoing access to funds: As long as a card user can make their minimum payments, they can keep borrowing.
  • Wide acceptance: Nearly 11 million merchants accept Visa or MasterCard in the U.S. and you can use them to pay for almost anything.
  • Potential rewards and promo rates: If the user’s credit is good enough, they may qualify for cards with 0% introductory APRs and/or rewards. The former can be tricky though, as the user could incur deferred interest if they don’t pay off their balance by the end of the promotional period.
  • Potential to avoid interest: If you pay off your full balance every billing cycle, you won’t pay interest, essentially getting a free short-term loan — but this can be easier said than done.


  • Higher average interest rates: The average credit card interest rate is 19.13%, which can get expensive if you don’t pay off your balance in full each month. This, combined with quick access to funds and wide credit card acceptance, can make it easier to get into debt. Case in point, Americans owe a total of $887 billion in credit card debt.
  • Fees: Credit cards can come with a variety of fees, including annual fees, over-limit fees, foreign transaction fees, cash advance fees, late payment fees, and more.
  • Variable rates: Credit card rates are often tied to the prime rate, which means when the Federal Reserve raises interest rates, your credit card rate may also rise.
  • Credit score effect: If you use a significant portion of your available credit, your credit score may drop because there’s a higher likelihood you may not be able to pay back what you owe.

Installment loans

Installment loans, like some of the options from Wisetack, allow consumers to borrow a set amount of money as a lump sum and pay it off in fixed payments over a set amount of time.

When and when not to use them:

Thanks to lower interest rates and the predictable payments they offer customers, installment loans are usually better for larger one-off purchases that a consumer may not choose to pay off all at once, such as medical, automotive, or home services. 

According to a 2019 study from Experian, 45% of consumers used financing for this purpose. The next most popular use case: consolidating debt, which makes sense, as financing options often have lower rates than credit cards on average.


  • Lower average interest rates: Right now, the average personal loan interest rate is 9.41% — significantly less than the average credit card interest rate. Plus, some lenders like Wisetack offer rates as low as 0% APR* for qualified consumers.
  • Predictable payments: Unlike credit cards, installment loans often come with steady payments and fixed rates, which make them easier to budget for.
  • Potentially fewer fees: In addition to avoiding the credit card–specific fees, with the right lender (like us!), consumers may also be able to avoid common financing fees such as late fees, prepayment penalties, and origination fees.
  • Bigger loans: The median credit limit for a credit card is just over $5,000. Consumers can usually get larger sums with installment loans; for example, Wisetack can facilitate loans up to $25,000.*


  • May require collateral: Some types of personal loans, such as pawn shop loans and car-title loans, sometimes force you to put something you own up for collateral, which the lender can seize if you aren’t able to pay what you owe. (We would never.)
  • Minimum borrowing amount: Whereas you aren’t required to use your credit card, with an installment loan, you usually have to borrow a minimum amount. This minimum amount is often around $1000; it’s $500* with us.
  • Not as universal as credit cards: Not every merchant offers consumer-friendly installment loans…yet. Those who do offer it, however, often see increased sales and happier customers.

The bottom line

Some of your customers may view credit cards and installment loans as comparable borrowing options, not realizing they are each best suited for a different purpose. They may be debating between the two or even leaning toward using a credit card when it comes to paying for a bigger job. This is when you can step in and educate them.

Using the pros and cons we listed for each, you can show them that while credit cards are often ideal for smaller everyday purchases, an installment loan can be better for bigger purchases that take time to pay off — like the services you provide.

But of course, not all installment loans options are created equal, so it’s important for consumers to understand what they’re signing up for before committing. Some come with a ton of hidden costs, while others, like Wisetack, strive to offer consumer-friendly financing with quick decisions that don’t affect credit, no hidden fees, and ARPs that start at 0%* for qualified customers.

If you’re interested in learning how to give your customers transparent and consumer-friendly financing options to help them afford the services they care about, reach out and we’d love to chat.

*All financing is subject to credit approval. Your terms may vary. Payment options through Wisetack are provided by our lending partners. For example, a $1,200 purchase could cost $104.89 a month for 12 months, based on an 8.9% APR, or $400 a month for 3 months, based on a 0% APR. Offers range from 0-35.9% APR based on creditworthiness. No other financing charges or participation fees. See additional terms at

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