Can you pay off a personal loan with a credit card?
You may be able to pay off a personal loan using your credit card. Depending on your card issuer, you may need to take extra steps to achieve your goal. There can be restrictions. At Discover®, for example, you cannot use a balance transfer to a Discover credit card to pay off a Discover personal loan.
You will want to check with your lender for additional details. There might be several options.
Balance transfer checks
Your credit card lender may send you balance transfer checks, also called convenience checks, or provide them on demand. These offers may include a low introductory or even 0% promotional annual percentage rate (APR). Keep in mind, though, that you’ll be subject to your card’s credit limit.
Cash advance
Many credit cards let you tap some of your credit limit in the form of cash. Cash advances often come with an upfront fee and a higher interest rate than the one you’re charged for purchases. Also, the credit card may charge interest immediately, rather than after an interest-free grace period.
Third-party service
Some third-party payment services allow you to use a credit card to make payments when credit cards may not otherwise be an option. These services may charge transaction fees.
Flexible installment plans
Some credit card issuers offer fixed-rate loans as an alternative to cash advances. You may have these deposited directly into your bank account. Discover Card does not offer this feature. You’d need to check with your other credit card issuers for availability, details, and restrictions.
What are the pros of paying off a personal loan with a credit card?
You might save money on interest with a temporary promotional rate
Balance transfer promotions may give you a low or even 0% interest rate for a period lasting several months. If you pay off your loan within the promotional period, you might save money on interest.
Your monthly payments are flexible
Credit cards offer low minimum payments each month. Because your payment amounts are not fixed, you’ll be able to choose how much to pay beyond the minimum amount required.
What are the cons of paying off a personal loan with a credit card?
Credit card interest rates are often higher
Interest rates on credit cards are higher on average than on personal loans. Keep in mind that there is a difference between the stated APR and interest rate. Unless you qualify for a low-interest promotion, higher interest rates could cost you more in the long term.
Balance transfers may have additional fees
Even if you get a 0% promotional rate on a credit card, there may be fees involved. These might include a balance transfer fee, cash advance fee, or third-party processing fee. These fees typically range from a set amount to a range of 2%–5% of the amount you borrow.
It could affect your credit score
Transferring personal loan debt to a credit card may increase the amount you have on your revolving credit. This could impact your credit utilization ratio, which is a factor on your credit report. A high credit utilization ratio may lower your credit score.
Your credit limit might not be high enough
Depending on the amount of credit you have available on your credit card, you might not be able to pay off your entire personal loan.
You have a limited time to repay at the lower rate
If you have a low promotional rate on your credit card, you may have only a short window of time to take advantage of it. Promotions typically range from 12 to 21 months. After that the interest rate may climb significantly. In contrast, personal loans offer fixed interest rates and one set regular monthly payment. Discover Personal Loans, for example, offers fixed-rate loans with flexible repayment terms for all loan amounts—36, 48, 60, 72, and 84 months.
When does it make sense to pay off a personal loan with a credit card?
There may be some situations when it could be worth considering. But be sure to do the math. It can get complicated, and you need to be comfortable that you can stick to your planned budget.
You qualify for a low APR promotion
If your credit score is in good shape, you may be eligible for an introductory low interest rate on a credit card. Although there may be fees involved, the interest savings could make it worth your while. Be sure you understand, however, how the interest is calculated for any new purchases you might make during this promotional period.
Your personal loan balance is relatively low
Compare your personal loan balance to the credit limits on your existing credit cards. This way you can assess how feasible it would be to transfer the full amount. Also, calculate how much you’d have to pay each month to pay off the new debt. You would want to see if the new monthly payments are significantly lower and if they fit your budget.
You’re financially disciplined
Even if you qualify for a low introductory offer, you may need to pay off the full balance within the promotional period for the move to make financial sense. Sticking to that plan may require extra discipline. If you’re tempted to make just the minimum payment on the card, it may be risky. You will also want to avoid adding purchases to the card until you pay down the debt. Otherwise, you could risk ballooning your balance, making it harder to pay off quickly.
Should you consider transferring the balance to another personal loan?
Many people use personal loans to pay off existing debt. But approaching this in the opposite direction—using a credit card to pay off a personal loan—involves considering several things. These include fees, interest rates, repayment terms, and your plan to reduce your debt.
Instead, it might make better financial sense to use another personal loan to consolidate your debt. There are several benefits to using a personal loan.
- A fixed repayment term
- A fixed interest rate
- Lower average interest rates
- The possibility of no origination fees
- No impact to your credit utilization ratio
Personal loans offer you a flexible repayment schedule based on your financial situation. At Discover Personal Loans, you can choose how long you’d like to repay your loan—from 36 up to 84 months. For example, if you get approved for a $15,000 loan at 12.99% APR for a term of 72 months, you’ll pay just $301 per month. Try our personal loan calculator to find the best repayment term for your budget.
Some personal loans also come with fees, like origination fees and closing costs, or prepayment penalties if you pay off the loan early. But with a Discover personal loan, make your payments on time and you can forget about fees altogether.