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If you’re looking to pay off personal loan debt, 0% APR balance transfer credit cards may sound appealing. But can a personal loan be transferred to a balance transfer card?
Personal loans can carry interest rates as high as 35.99%, causing you to pay much more than you originally borrowed. And while it’s possible to move a personal loan to a balance transfer card, not all credit card issuers allow it. Plus, you’ll want to consider additional factors like balance transfer fees and the length of offer periods before deciding how to manage your debt. If you do your homework, you could use a balance transfer card and save money.
- 1 Can a personal loan be paid off with a balance transfer credit card?
- 2 How to pay off a personal loan with a balance transfer credit card
- 3 The pros and cons of transferring a personal loan to a credit card
- 3.1 Cons
- 3.2 Pro: Could potentially save a significant amount of money
- 3.3 Pro: You could get out of debt faster
- 3.4 Pro: You can simplify your payment
- 3.5 Con: balance transfer fees
- 3.6 Con: High APR after introductory offer expires
- 3.7 Con: A transfer does not resolve the root cause of the debt
- 3.8 Con: There may be additional stipulations and limitations
Can a personal loan be paid off with a balance transfer credit card?
With a balance transfer credit card, you can move your high-interest debt to a card with a low APR. Some of these cards give you almost two years at 0% APR, so you can pay off your debt without accruing interest.
Find a balance transfer card. There are many more on the market now, offering promotional APRs that last from six to 21 months.
Although balance transfers usually involve moving balances from one credit card to another, you can sometimes move a personal loan to a balance transfer card, says Stella Shon, credit card writer for The Points Guy. (Like NextAdvisor, The Points Guy is owned by Red Ventures.)
“It’s definitely possible to do, and with the tempting 0% APR offers, it makes a lot of sense for many cardholders,” says Shon.
It may be surprising to hear that, since many companies don’t advertise that you can pay off personal loans with balance transfer cards. “I think balance transfers are meant for debt that’s already on an existing card rather than personal loans,” Shon said. “Personal loans are not the primary intent of balance transfers.”
Not all credit card companies allow loan balance transfers, but several do. For example, Bank of America and Capital One have language on their websites confirming that customers can transfer some loans to a balance transfer credit card. Discover also allows cardholders to transfer balances from most major credit cards and bank loans, according to an emailed statement from Gaurav Sharma, Discover’s senior vice president of acquisitions marketing.
How to pay off a personal loan with a balance transfer credit card
While it’s possible to transfer a personal loan to a balance transfer card, the process works a little differently than transferring a balance between credit cards. It usually involves a balance transfer check, says Matt Schulz, chief credit analyst at LendingTree.
“As far as how a transfer typically works when it comes to transferring a personal loan, there are probably a few options,” he said. “It can be done with the so-called balance transfer check, which the cardholder would extend to the lender of the credit he wants to transfer. You may also be able to do the transfer online or over the phone.”
A balance transfer check works like a personal check, except the money is drawn from your new line of credit. The credit card company mails you the check and you can deposit the amount in the bank and use it to pay off your personal loan.
The pros and cons of transferring a personal loan to a credit card
Before transferring a personal loan to a balance transfer credit card, be sure to weigh the pros and cons:
Balance Transfer Fees
High APR after introductory offer expires
It does not solve the root cause of the debt.
There may be additional provisions and limitations
Pro: Could potentially save a significant amount of money
Using an interest-free credit card to pay off a personal loan might be a good idea.
“If you can take advantage of a 0% balance transfer, you could save a good amount of money in interest by switching from a personal loan to a balance transfer card,” says Schulz. “How much you can save depends on how big the loan is, how high the interest rate is, and how long you have left on the loan, but you could save a pretty large amount of money.”
How much can you save? Consider this example.
Larry has a $5,000 personal loan at 9% interest with a three-year timeline. Based on his current payment terms, his monthly payment is $159 per month and his total payment cost over three years would be $5,724.
Larry applied for a balance transfer card and qualified for one that had an introductory offer of 0% APR for 18 months. The card had a 3.00% balance transfer fee, which added $150 to his balance.
If you continued to make the same monthly payment you had before, $159, you would pay off your debt in 33 months and pay a total of $5,400.08, a savings of $323.86.
If you increase your payments to pay off the debt within the promotional offer period, you’ll pay $127.11 more per month, bringing your monthly payment to $286.11. If you chose this approach, you would pay only $5,150, the amount of the transferred balance and the balance transfer fee, and no interest.
Pro: You could get out of debt faster
If you paid off your debt within the introductory period, you would save money and also get out of debt much faster. In the example above, Larry would have to increase his payments to $286.11 to pay off his debt within the promotional period. By doing so, he would pay off his debt 18 months earlier than originally scheduled.
Eliminating debt can improve your credit and allow you to pursue other financial goals, such as increasing your retirement savings rate.
Pro: You can simplify your payment
If you have multiple forms of debt, such as personal loans and multiple credit cards, keeping track of multiple payments and due dates can be overwhelming. By taking advantage of a balance transfer, you can keep things simple.
“Balance transfers can even allow you to consolidate multiple debts you have and streamline your finances,” Schulz said.
Con: balance transfer fees
When deciding if a balance transfer is right for you, be sure to consider balance transfer fees. Balance transfer fees are typically 3% to 5% and are calculated based on the amount you transfer. Depending on the amount of debt you transfer and the fee, it could reduce the effectiveness of the transfer.
Con: High APR after introductory offer expires
In general, credit cards have much higher APRs than personal loans. The average APR for personal loans was 10.28% as of January 31, according to Bankrate. For the same time period, the average APR for credit cards that assessed interest was 16.44%.
“If you open a balance transfer credit card, make sure you pay it off during the introductory period,” advises Shon. “Otherwise interest rates will be so high that your debt will be even more astronomical.”
Con: A transfer does not resolve the root cause of the debt
Although a balance transfer can be a helpful tool, it doesn’t solve what got you into debt in the first place. If you don’t address that problem, you could make the problem worse and end up even deeper in debt.
Con: There may be additional stipulations and limitations
Not all credit card issuers allow you to use a balance transfer card to pay off a personal loan, or they may not allow you to use the card to pay off a loan from the same bank.
“For example, if you have a Citi loan, you can’t transfer it to a Citi credit card,” says Shon. “Instead, you have to find a different bank or an unaffiliated bank for that transfer.”
To find out if you can transfer a personal loan to a balance transfer credit card, contact the card issuer directly.