An increasing number of Australians are shifting from personal loans to credit cards, particularly for lower sums, a new report by an independent market analyst shows.

According to Datamonitor, personal loans are facing rising competition from credit cards in the Australian market.

"Credit card debt and personal lending are substitutes to some extent and over time credit cards have gradually eroded market share from personal loans," said Datamonitor senior analyst Petter Ingemarsson.

Besides being a more flexible form of credit, the credit card market also commonly features balance transfer offers. Although balance transfer offers have been scarce following the financial crisis, industry observers expect such offers to become more common in the next year.

"As credit card balance transfer offers become more prevalent, the personal loan market will be put under pressure, especially for sums below $10,000", Mr Ingemarsson said.

The report, however, said that consumers have become more concerned with their credit card debt levels and have paid back an increasing portion of their outstanding balance in the last two years.

Personal loan, meanwhile, were less affected by the global financial crisis, and are a more attractive form of credit in uncertain times due to the self-imposed discipline of the repayment structure for consumers.

Mr Ingemarsson said some personal loans have also added new flexible features to better compete with the threat from cards.