Personal loans give consumers a convenient, flexible way to cover big purchases, consolidate debt, or complete home renovation projects. But loan terms can last several years, and your current debt may affect your ability to secure additional funding, such as a mortgage or car loan. Can you pay off a personal loan with credit cards? While that may be an option, it’s not always the best (or only) approach.
How to Pay a Loan with a Credit Card
Can you transfer a personal loan to a credit card?
If your credit card accepts balance transfers, you can pay off a personal loan with your credit card.
A balance transfer card will allow you to transfer the balance of your personal loan, which effectively settles the personal loan. The credit card issuer will pay your lender, and you’ll pay the credit card issuer.
The goal, of course, is to transfer your personal loan debt to a credit card with a lower interest rate. This can save you money on your monthly payments and reduce your loan’s lifespan. And the transfer itself is not hard to do, with many credit card companies offering interest-free promotional rates.
Remember, though, that your balance transfer card provider usually charges a fee when you transfer the debt. This is typically a percentage of the total amount being transferred. The amount may be small, but it will impact the final amount of your loan.
Things to Consider When Paying Off a Personal Loan with Credit Cards
Can you pay off a personal loan with credit cards? Yes. But should you? That’s another matter entirely.
Here are some things to consider before you transfer your loan balance to a credit card.
1. Interest Rates
Personal loans typically offer competitive interest rates, with an average of around 10% for those with good credit. But according to the Federal Reserve, the average credit card interest rate was 20.4% in 2022, roughly double that of a typical personal loan.
What does that mean for your loans? It means that unless your credit card has an unusually low interest rate, you’re unlikely to save any money by transferring your loan balance.
2. Promotional Offers are Hard to Get (and Keep)
Many credit card providers offer introductory rates, sometimes as low as 0% APR for a set time period, which may range up to 20 months or even more. This might provide an attractive way to pay off your loan quickly, eliminating any remaining interest.
But these promotional rates are typically reserved for consumers with excellent credit. You may or may not qualify for the rates being advertised.
Furthermore, these promotional rates often come with strings attached. If you miss as much as a single payment, the promotion could be canceled, leaving you stuck with standard interest rates on a high credit card balance.
3. Promotional Offers Are Temporary
How long will it take you to pay your personal loan? If your balance is high, transferring it to a balance transfer card might not be wise.
Introductory offers are, by definition, temporary. Some last for only your first year, at most. If it takes you longer to pay off your loan balance, you could find yourself facing a sudden spike in your interest rates.
4. Balance Transfer Fees
Even if the credit card company offers a competitive interest rate, it’s important to factor in any fees associated with using the card for this purpose.
You’ll likely face a “balance transfer fee” of some type, which will usually be a percentage of your loan balance. You’ll need to add this one-time fee to the total cost of the loan to decide whether it’s worth it.
5. Prepayment Penalties
Depending on your lender, your loan may have a prepayment penalty, which means that if you pay your loan off early, you could face a financial penalty. The money you save by transferring your debt may offset this fee, but this will be another expense you’ll need to weigh when making your decision.
When Can You Pay Off a Personal Loan with Credit Cards?
These considerations aren’t meant to discourage you. On the contrary, there may be times when it makes sense to transfer a personal loan to a low-interest credit card. This is usually a smart move when you have a low remaining balance or limited time remaining on your loan term.
Loan Transfer Example
Imagine that you originally took out a personal loan for $15,000 with an APR of 10%. Your total loan term is 60 months, but you’ve already been paying for 30, meaning you have two and a half years remaining.
Under these terms, your average monthly payment comes to $318.71. After 30 months, you’ll have paid $9,561, with a principal balance of $7,500. If you continue paying on your loan, you’ll pay an additional $9,561, which translates to $2,061 in interest.
Now imagine that instead of paying that balance, you transfer it to a no-interest balance transfer card. If you can make a $625 monthly payment, you can pay off your personal 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 wise choice.
Transferring Other Loans to Credit Cards
In select cases, transferring a personal loan to a credit card makes financial sense. But what about other loan types?
Can I Pay My Mortgage with a Credit Card?
Many credit card companies prohibit you from using a credit card to pay your mortgage.
Some third-party companies will pay off your mortgage with a check, then charge your credit card. But as with personal loans, you’ll need to ensure that the interest rates and fees work in your favor. Otherwise, you’ll face an even higher payment schedule than you currently have.
Unless your mortgage is almost paid off and you can pay off the balance within the promotional period of a balance transfer card, this will almost never be a good decision.
Can You Pay Off Student Loans with a Credit Card?
You cannot pay off your federal student loans with a credit card, but it may be possible to pay off your private student loans with a credit card. Once again, however, you’ll need to find a balance transfer process that offers competitive interest rates and be able to pay off the loan within the zero-interest promotional period for this to be a financially sound decision.
Alternatives to Balance Transfers
A credit card transfer won’t work for everyone. If you’re struggling to eliminate a personal loan, consider the following methods:
- Pay more than the minimum balance.
- Refinance your personal loan.
- Negotiate a debt settlement.
These methods can help you get out of debt faster and reduce your total interest fees. That said, negotiating a settlement should be a last resort, as it will damage your credit score.
Making the Right Choice
Can you pay off a loan with credit cards? In a word, yes — but not everyone should.
For a balance transfer to work, you need good enough credit to qualify for a balance transfer card with competitive terms and the capacity to pay the remainder of your balance within the zero-interest promotional period. Otherwise, it may be too challenging to find a credit card offer whose terms are low enough — and last long enough — to help you pay down the loan.
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