Terraform vs CloudFormation: Which Should You Actually Use?

You’ve decided to stop clicking around the AWS console and write your infrastructure like code. Good. Now comes the question everyone runs into: Should you use Terraform or just stick with AWS CloudFormation?

You’ll find a fanbase for both. Some people swear by Terraform’s flexibility. Others stick with CloudFormation because it’s already in AWS and “just works.” The truth? It depends on what you’re building, how your team works and how much control you want.

Let’s not get lost in feature tables. Let’s talk about what it’s like to use both, and where they shine or fall short.

What CloudFormation Actually Does (And Doesn’t)?

CloudFormation is AWS’s Infrastructure as Code tool. You write templates in YAML or JSON that describe your infrastructure—things like EC2 instances, S3 buckets, IAM roles—and AWS turns that into a “stack.” It builds the resources in the order they need to exist, and tracks them as a group.

It’s tightly integrated. The good kind of tight. If AWS adds a new feature, chances are CloudFormation supports it on day one. It also fits naturally into other AWS services like CodePipeline, CloudWatch, and AWS Organisations.

But there are tradeoffs. Writing long YAML files gets painful. Updating large stacks can be slow. If something fails mid-deploy, a rollback might leave you in an awkward spot. There’s drift detection, but it’s not always fast. Still, if you’re all-in on AWS, it’s the easiest native tool to start with.

What Terraform Does Differently?

Terraform is made by HashiCorp. It’s open-source and works with pretty much every cloud provider, plus a bunch of SaaS tools. Instead of YAML or JSON, you write in HCL (HashiCorp Configuration Language), which is cleaner, easier to read, and let’s be honest a lot less painful.

Terraform uses providers to interact with different platforms. The AWS provider is just one of many. You could, in the same .tf file, create infrastructure in AWS, provision Cloudflare DNS records, and spin up GitHub repos. You’re not locked into one ecosystem.

State is handled differently, though. Terraform stores a state file that tracks what’s been deployed. This lets it do powerful diffs and previews, but you have to manage that file properly. Put it in S3 with locking, or use Terraform Cloud, just don’t leave it on your laptop.

Key Differences Between Terraform and AWS CloudFormation

1. Terraform feels nicer to write.
   It reads more like actual code. CloudFormation YAML isn’t hard, it’s just… wordy.
2. CloudFormation is safer for AWS-only teams.
   If your team already knows IAM roles, stack policies, and uses CodeBuild or CodeDeploy, sticking with CloudFormation makes onboarding easier.
3. Terraform gives you better visibility before deployment.
   The Terraform plan gives a line-by-line preview of what’s going to change. CloudFormation’s Change Sets are useful, but clunkier.
4. CloudFormation abstracts more.
   That’s both good and bad. Less control, but also fewer moving parts to break.
5. State management is where Terraform trips people up.
   If you don’t set up a remote state and lock, you’re going to have a bad time.

Terraform vs CloudFormation

	Terraform	CloudFormation
Language	HCL (clean, concise)	YAML or JSON (verbose)
Scope	Multi-cloud, SaaS, AWS, local	AWS only
State	External (you manage it)	Managed by AWS
Change Preview	terraform plan	Change Sets
Flexibility	Very high	Medium
Onboarding	Steeper (but worth it)	Easier for AWS-only teams

Security and Permissions

Terraform runs wherever you put it—your machine, CI/CD pipeline, or Terraform Cloud. That means you control credentials. You also have to manage them securely. There’s more flexibility, but also more responsibility.

CloudFormation stays in the AWS environment. If you have strict compliance needs, that’s a plus. It can assume roles internally and follows the same guardrails as your other AWS services.

Performance Comparison: Terraform vs CloudFormation

CloudFormation is sometimes faster at creating resources because it’s native. But Terraform’s speed isn’t usually a blocker. What matters more is transparency.

When Terraform does something, you know exactly what. When CloudFormation does it, sometimes you just get “ROLLBACK_IN_PROGRESS” and have to figure it out from logs.

Use Cases: When to Choose Terraform vs CloudFormation

Choose Terraform if:

• You’re using more than just AWS.
• You want infrastructure written like real code.
• Your team uses Git workflows, branches, pull requests, etc.
• You want one tool to handle everything—infra, DNS, user accounts, you name it.

Choose CloudFormation if:

• You’re all-in on AWS and don’t plan to leave.
• You already use AWS Org, CodePipeline, or Control Tower.
• You want a simpler setup with less to maintain.
• Your company enforces AWS-native tools for security reasons.

Common Pitfalls and Challenges

Terraform mistakes:

• Not locking the state file.
• Letting multiple people terraform apply at once.
• Forgetting to version modules or providers.

CloudFormation mistakes:

• Writing one monster YAML file instead of splitting into templates.
• Not testing Change Sets before deploying to production.
• Thinking rollback will always “just work.” Spoiler: it doesn’t.

Best Practices for Using Terraform and CloudFormation

Neither tool charges you to use it, but they can help you waste money if you’re not careful.

Terraform makes cost tagging easier with modules. You can build standard tagging into everything you deploy. It’s also easier to enforce naming conventions that keep your cloud bills readable.

CloudFormation integrates better with AWS Cost Explorer, and tagging is automatic if you structure your templates well.

Both tools can help or hurt, depending on your discipline, not the tool itself.

What should you choose?

• Use Terraform if you care about multi-cloud, cleaner code, or more control.
• Use CloudFormation if you want less to manage and live inside AWS.

You can even mix both. Some teams use CloudFormation for the basics, and Terraform for edge services, DNS, or tools AWS doesn’t cover. There’s no rule against using the right tool for each job.

Just pick something that doesn’t slow your team down. Write infra like you’d write code. And whatever tool you choose, learn how to break it before it breaks you.

Conclusion

You just need to choose the right fit for your workflow. Terraform is ideal when you need clean, reusable code across cloud platforms. CloudFormation works well when you’re committed to AWS and prefer tighter integration with native services. What matters most is choosing a tool that doesn’t slow your team down or complicate your deployments.

Still unsure? Talk to our tech advisors to identify the best-fit solution for your business needs. At Perensoft, we’ve helped teams scale efficiently with tailored DevOps Infrastructure as Code Management Services that balance speed, structure, and reliability.