If you’re looking to pay off personal loan debt, balance transfer credit cards at 0% annual percentage rate could sound appealing. But can you transfer a personal loan to a balance transfer card?
Personal loans can have interest rates as high as 35.99%, causing you to pay far more than you initially borrowed. And while it is 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 length of offer periods before deciding how to handle your debt. If you do your homework, you could utilize a balance transfer card and save money.
Can You Pay Off a Personal Loan 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.
Shop around for a balance transfer card. There are now many more on the market, offering promotional APRs that last for 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, a credit cards writer with The Points Guy. (Like NextAdvisor, The Points Guy is owned by Red Ventures.)
“It’s definitely possible to do so, and with the enticing 0% APR offers, it makes a lot of sense for many cardholders,” Shon says.
That may be surprising to hear, as many companies don’t advertise that you can pay off personal loans with balance transfer cards. “I think balance transfers are intended for debt already on an existing card rather than personal loans,” said Shon. “Personal loans aren’t the main intention of balance transfers.”
Not all credit card companies allow balance transfers of loans, but several do. For example, Bank of America and Capital One have language on their websites confirming customers can transfer some loans onto a balance transfer credit card. Discover also allows cardmembers to transfer balances from most major credit cards and bank-originated loans, according to an emailed statement from Gaurav Sharma, Discover senior vice president of acquisition marketing.
How to Pay Off a Personal Loan With a Balance Transfer Credit Card
Although it is possible to move a personal loan to a balance transfer card, the process works a bit differently than moving a balance between credit cards. It usually involves a balance transfer check, says Matt Schulz, chief credit analyst with LendingTree.
“As far as how a transfer typically works when it comes to transferring a personal loan, there are likely a few options,” he said. “It can be done with a so-called balance transfer check, which the cardholder would make out to the lender of the loan they want to transfer. You can also likely do the transfer online or over the phone as well.”
A balance transfer check works like a personal check, except the money is pulled from your new line of credit. The credit card company sends you the check in the mail, 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, make sure you weigh the pros and cons:
Potentially save a significant amount of money
A balance transfer can help you become debt-free faster
Balance transfer fees
High APR after the introductory offer expires
Doesn’t solve the root cause of debt
There may be additional stipulations and limitations
Pro: You Could Potentially Save a Significant Amount of Money
Using an interest-free credit card to pay off a personal loan could be a smart idea.
“If you can take advantage of a 0% balance transfer, you could save a good amount of money in interest by moving a personal loan to a balance transfer card,” Schulz says. “How much you can save depends on how big the loan is, how high the interest rate is, and how much time 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 time line. Under his current repayment terms, his monthly payment is $159 per month, and his total repayment 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 he kept making the same monthly payment he had before — $159 — he’d pay off his debt in 33 months and pay a total of $5,400.08 — a savings of $323.86.
If he increases his payments to pay off the debt within the promotional offer period, he will pay $127.11 more per month, bringing his monthly payment to $286.11. If he went with this approach, he’d repay just $5,150 — the amount of the transferred balance and balance transfer fee — and no interest.
Pro: You Could Become Debt-Free Faster
If you paid off your debt within the introductory period, you’d save money, and you’d also be out of debt much faster. In the above example, Larry would have to increase his payments to $286.11 to pay off his debt within the promotional period. By doing that, he’d pay off his debt 18 months earlier than originally scheduled.
Eliminating debt can improve your credit and allow you to pursue other financial goals, like boosting your retirement savings rate.
Pro: You Can Simplify Your Repayment
If you have multiple forms of debt, such as personal loans and several credit cards, keeping track of multiple payments and due dates can be overwhelming. By taking advantage of a balance transfer, you can simplify things.
“Balance transfers can even let you consolidate multiple debts that you have and streamline your finances,” said Schulz.
Con: Balance Transfer Fees
When deciding if a balance transfer is right for you, make sure you account for balance transfer fees. Balance transfer fees are usually 3% to 5% and are calculated based on the amount you transfer over. Depending on the amount of debt you transfer and the fee, it could reduce the effectiveness of the transfer.
Con: High APR After the 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 your debt will be even more astronomical.”
Con: A Transfer Doesn’t Solve the Root Cause of Debt
Although a balance transfer can be a helpful tool, it doesn’t solve what got you into debt in the first place. Without addressing that problem, you could just worsen the issue and end up even more in debt.
Con: 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 loan from Citi, you can’t transfer that to a Citi credit card,” says Shon. “Instead, you have to find a different bank or nonaffiliated 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.