Paying off a loan with a credit card will depend on the lender and the type of loan. If your lender allows it and you are given enough of a credit limit, you may be able to pay a portion of your entire balance of your home, car or student loans with a credit card.
Federal student loan issuers, however, are restricted by the Department of Treasury from accepting credit card payments.
Its also possible that certain loan providers have their own policies regarding loan payment using a credit card. You can always contact your lender to learn about your options.
Its more common to see credit cards paid off by debt consolidation loans, but there can be cases where it might make sense to consider using credit cards with low or zero percent promotional periods to pay off a loan.
Its something to consider if you have a high interest rate on your loan, and your budget can handle the size of the monthly payments you need to make to wipe out the debt before the low or zero percent interest rate period expires.
Taking out a personal loan can be a great way to consolidate debt or finance a large purchase. But repaying a personal loan brings a new monthly bill. If money is tight you may wonder if you can use a credit card to pay off your personal loan.
The short answer is yes, you can pay a personal loan with a credit card in most cases. However, this option comes with some big drawbacks you’ll want to consider first Keep reading to learn more about the pros, cons, and alternatives for paying a personal loan with plastic
The Downsides of Paying Loans With Credit Cards
Using a credit card to pay a personal loan may seem like an easy fix But it actually creates some new problems
Higher interest rates. Credit cards have much higher interest rates than personal loans. The average credit card interest rate is around 15% to 20%. Meanwhile, personal loan rates are typically 6% to 36%. If you don’t pay off the credit card bill in full, interest charges will pile up quickly.
Cash advance fees. When you use a credit card for purchases, you get an interest-free grace period. But that grace period doesn’t apply to cash advances. Cash advance fees are typically around 5% of the amount, or $10 minimum.
Balance transfer fees. Some credit cards let you transfer a balance from another credit card or account. But balance transfer fees are usually 3% to 5% of the amount transferred.
Credit damage. Maxing out your credit cards can hurt your credit scores. Having high balances and high credit utilization drags down your scores.
Missed payments. Juggling another payment could increase chances of a late payment fee or other penalties. Missed payments hurt your credit history as well.
Harder to pay off. Adding to credit card debt makes it more challenging to become debt-free. The minimum payment only covers a little interest and principal each month.
As you can see, using credit cards to pay personal loans only worsens debt issues. You’d end up owing more overall, with less manageable monthly payments.
When Can You Pay a Personal Loan With a Credit Card?
Very few personal loan lenders accept credit card payments. Some of the only exceptions are peer-to-peer lending platforms like Prosper and LendingClub. Their online systems allow credit card payments.
But traditional banks and credit unions that offer personal installment loans don’t take credit cards. These lenders include Wells Fargo, Chase, U.S. Bank, Bank of America, Capital One, and more.
If your personal loan is through a peer-to-peer lender, you may have the option to pay by credit card. But double check, because their card processing partners may decline payments to these types of lenders.
And again, even if you can pay with a card, the extra fees and interest costs make this option less than ideal.
Tips for Paying Off a Personal Loan
Paying off a personal loan early saves on interest charges over the loan term. If your budget is tight, consider these tips to free up cash to boost payments:
- Refinance for a lower monthly payment
- Sell unused items
- Work overtime if possible
- Reduce discretionary spending
- Earn extra money with a side gig
- Apply bonuses and tax refunds toward the loan
- Split the payment between two paychecks
You may also talk to the lender about hardship programs. For example, they may be able to lower or pause payments for a short period if you’re facing financial challenges.
Alternatives to Using a Credit Card
Again, it’s best to avoid putting personal loan payments on a credit card. But if you do need some temporary relief, here are better options:
Balance Transfer Credit Card
A balance transfer credit card lets you move debt onto a new card with a 0% intro APR period. You typically get 12 to 18 months to pay off the balance without interest. There’s a one-time balance transfer fee, but it’s cheaper than racking up interest.
This only defers payments though. Make sure you can pay off the card before rates rise. Otherwise, high retroactive interest gets applied.
401(k) Loan
See if your employer allows 401(k) loans. You can borrow up to $50,000 or 50% of your vested balance. Interest rates are around 5%, paid back to your own account. As long as you repay in 5 years through payroll deductions, there are no credit checks or fees.
Downsides are you lose retirement investment gains on the borrowed amount. You must repay if you leave the job. The loan may also count as income, raising your taxes.
Home Equity Loan or Line of Credit
If you have sufficient home equity, a home equity loan or HELOC can provide funds at lower rates than credit cards. You get fixed rates with a loan or variable rates with a line of credit. Interest is usually tax deductible too.
Closing costs range from 2% to 5% of the amount borrowed. Make sure you can handle the larger mortgage payments.
Borrow from Friends or Family
An informal loan from friends or family is another possibility. You may even be able to borrow at zero interest. Just be sure to draft a repayment agreement to avoid misunderstandings.
Personal Bank Loan
Consider asking your bank for an unsecured personal loan to pay off the existing loan. This can streamline payments into one bill at a lower rate. You’ll need good credit and income to qualify and rates vary widely. Make sure to compare costs of the new loan.
Debt Management Plan
Non-profit credit counseling agencies can set up debt management plans. They negotiate lower rates, fees, and payments with creditors. You deposit funds with the agency who distributes payments. There’s a monthly fee for this service.
Debt Consolidation Companies
Debt consolidation companies offer debt relief services for a fee, but watch out for scams. Legitimate options include balance transfer cards, loans, or enrolling in debt management plans. But avoid any company asking for large upfront fees before providing services.
The Bottom Line
Paying off a personal loan with a credit card is generally not the best idea due to higher interest rates and fees. Very few lenders even allow credit card payments. Your best options are to pay from a bank account, pursue alternatives like balance transfer cards, or earn extra income to boost payments. With some planning, you can avoid the drawbacks of shifting personal loan payments to a credit card.
When does it make sense to pay off a loan with a credit card?
The core question to answer is whether you will pay less interest when you pay down a loan with a credit card, or whether youll end up paying more. And that really depends on whether you think you can clear your zero percent cards balance before its promotional period ends and its Annual Percentage Rate (APR) shoots up sometimes into the double digits.
Another thing to consider is whether your credit card and loan APRs are fixed or variable.
Your credit card APR might be lower than your loan right now, but if its a variable APR, (rather than a fixed APR) theres a chance that it could increase based on changes to your credit score, prime rates and more.
Something else to consider is your credit score. If your income is volatile and theres a chance you might be late with a credit card payment in the time it takes to pay off the loan, then your credit score could drop. And if that happens, your APR could increase, causing you to pay more in interest over time.
Paying your loan with a low-interest credit card
Here are some steps for researching and comparing low-interest credit card and loan rates to decide if this is the right option for you.
Using A Personal Loan to Pay Off Credit Card Debt? A Bad Idea, Or What?
FAQ
Is it a good idea to pay a loan off with a credit card?
How to repay a loan on a credit card?
Why can’t I pay my auto loan with a credit card?
Can credit cards be used for loans?
Can a personal loan pay off credit card debt?
By taking the proceeds of a personal loan to pay off credit card debt, you can eliminate multiple monthly high-interest card payments and consolidate the debt into one monthly personal loan payment—often at a reduced cost. Using a personal loan to consolidate your credit card debt is a common form of debt consolidation.
Should you get a personal loan or a credit card?
One big problem with credit cards is if you keep using them for purchases, you may never pay off your debt. Personal loans, on the other hand, come with a fixed interest rate, a fixed monthly payment and fixed repayment schedule that dictates the exact date you’ll pay off your debt for good.
Can I pay my loan with a credit card?
So this is not a way to meet minimum spending requirements for a welcome bonus or to earn extra rewards. If your loan service provider accepts credit cards you can simply pay directly with your credit card online or over the phone. Keep in mind, there will likely be a fee of around 3%.
Can I consolidate credit card debt using a personal loan?
There are many ways to consolidate credit card debt. Among them is using a personal loan to pay off credit debt. It’s possible to pay off credit card debt using a personal loan. But that doesn’t mean it’s always the best choice. Explore a little more about how personal loans work and how consolidating debt might affect your finances and credit.