Pay Off Personal Loan With Credit Card

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Pay Off Personal Loan With Credit Card

Personal loans offer consumers an easy and flexible way to pay for major purchases, consolidate debt or complete home improvement projects. However, loan terms can last for several years, and your current debt may affect your ability to obtain additional financing, such as a mortgage or car loan. Can you pay your loan with credit cards? While this may be an option, it is not always the best (or only) option.

How To Pardon Credit Card Debt With A Personal Loan

If your credit card accepts balance transfers, you can pay off your loan with a credit card.

A balance transfer card allows you to transfer your loan balance, paying off your loan efficiently. The credit card issuer pays your lender and you pay the credit card issuer.

Of course, the goal is to transfer your loan debt to a low-interest credit card. This can save on monthly payments and shorten the loan period. And the transfer itself isn’t difficult, as many credit card companies offer interest-free sales rates.

☝️ Keep in mind, however, that your balance transfer card provider usually charges a fee when transferring credit. This is usually a percentage of the total amount transferred. The amount may be small, but it affects the final loan amount.

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Can you pay your loan with credit cards? OH YEAH. But should it? That’s one problem altogether.

Personal loans offer competitive interest rates, averaging around 10% for those with good credit. But according to the Federal Reserve, the average credit card interest rate in 2022 was 20.4%, about twice that of a typical loan.

What does this mean for your loan? This means that unless your credit card has an unusually low interest rate, it’s unlikely that you’ll save money by transferring your loan balance.

Many credit card providers offer introductory interest rates, sometimes as low as 0% APR for a limited period that can last up to 20 months or longer. This can be an interesting way to pay off the loan quickly, eliminating any remaining interest.

What Are The Pros And Cons Of A Personal Loan To Pay Off Credit Cards? — Tally

However, these sale prices are reserved for buyers with excellent credit. You may or may not qualify for published rates.

Plus, they often come with advertising fees. If you miss even one payment, the sale could be cancelled, leaving you stuck with a regular interest rate if you have a high credit card balance.

How long will it take to repay your loan? If your balance is high, it may not make sense to transfer it to a balance transfer card.

The introductory offer is temporary in nature. Some only stay for the first year, mostly. If you take too long to pay off your loan balance, you could find yourself facing an unexpected interest rate hike.

Should You Get A Loan To Pay Off Credit Card Debt?

Even if your credit card company offers a competitive interest rate, it’s important to consider the fees associated with using the card for this purpose.

You will be charged some sort of “balance transfer fee” which is a percentage of your loan. You need to add this one-time fee to the total cost of the loan to decide if it’s worth it.

Depending on the lender, the loan may have a prepayment penalty, which means that if you repay the loan early, you may face a penalty. The money you save by transferring debt can offset this fee, but it’s another cost you need to consider when making your decision.

These considerations are not meant to discourage. On the contrary, it may be that it makes sense to transfer the personal loan to a low-interest credit card. This is usually a smart move if the loan balance is low or the loan term is limited.

Should I Use A Loan To Pay Off Credit Card Debt?

Imagine you first applied for a personal loan for $15,000 with a 10% APR. The total term of your loan is 60 months, but you have already paid 30 months, which means you have two and a half years left.

Under these terms, the average monthly payment is $318.71. After 30 months, you will have paid $9,561 and have a principal balance of $7,500. If you continue to repay the loan, you will pay another $9,561, which means $2,061 in interest.

Now imagine that instead of paying that balance off, you transfer it to an interest-free balance transfer card. If you can make a monthly payment of $625, you can pay off your loan within a year, saving over $2,000.

As long as your balance transfer fees and prepayment penalties don’t exceed this amount, you’ve made a smart choice.

Fund Your Vacation With A Personal Loan

In some cases, transferring a personal loan to a credit card makes financial sense. But what about other types of loans?

Some third-party companies will pay your loan by check and then charge your credit card. But just like with a personal loan, you need to make sure the interest rates and fees are right for you. Otherwise, you’ll face a higher payment schedule than you currently have.

If your loan is almost paid off and you can’t pay off the balance at the time of the cash transfer card sale, it’s never a good decision.

You may not be able to pay off your student loans with a credit card, but you can pay off personal loans with a credit card. But again, you need to find a balance transfer program that offers competitive interest rates and be able to repay the loan during an interest-free market to make it a financially sound decision.

Tips To Pay Off Personal Loans Early

Credit card transfers don’t work for everyone. If you are having trouble repaying your loan, consider the following options:

These methods can help you get out of debt faster and lower your interest payments. That said, negotiating a settlement should be a last resort as it will hurt your credit score.

Is it possible to pay the loan with credit cards? In short, yes, but not everyone should do it.

For a balance transfer to work, you need enough credit to get a balance transfer card with competitive terms and the ability to pay off your balance during the interest-free sale. Otherwise, it can be very difficult to find a credit card that has low enough terms and lasts long enough to help you pay off your loan.

How To Get A Personal Loan: 7 Steps For Success

John Boitnott is a journalist and digital consultant who has worked for 20 years in television, newspaper, radio and Internet companies in the United States. He is a consultant for StartupGrind and has written for NBC’s Fast Company, Inc. Magazine, Entrepreneur, USAToday and VentureBeat, among others.

The editorial team uses only quality sources to support the facts of our articles. Read our Editorial Policy to learn more about how we ensure our content is unbiased, accurate and up-to-date.

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