If you’re looking to pay off personal loan debt, 0% APR balance transfer credit cards may seem appealing. But can you transfer a personal loan to a balance transfer card?
Personal loans can have interest rates as high as 35.99%, requiring you to pay significantly more than you originally borrowed. And while it’s possible to transfer a personal loan to a balance transfer card, not all credit card issuers allow it. Additionally, you’ll want to consider additional factors such as balance transfer fees and length of offer periods before deciding how to manage your debt. If you do your homework, you can use a balance transfer card and save some money.
Can you pay off a personal loan with a balance transfer credit card?
With a balance transfer credit card, you can transfer your high-interest debt to a card with a low APR. Some of these cards give you nearly 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 from six to 21 months.
Although balance transfers typically involve transferring balances from one credit card to another, sometimes you can transfer a personal loan to a balance transfer card, says Stella Shon, credit card writer with The dot guy. (Like NextAdvisor, The Points Guy is owned by Red Ventures.)
“It’s entirely possible to do so, and with the tempting 0% APR offers, it makes a lot of sense for many cardholders,” says Shon.
This may be surprising to hear because many companies don’t advertise that you can pay off personal loans with balance transfer cards. “I think balance transfers are for debts 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 many do. For example, Bank of America and Capital one have language on their websites confirming that customers can transfer certain 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, senior vice president of acquisition marketing at Discover.
How to pay off a personal loan with a balance transfer credit card
Although it is possible to transfer a personal loan to a balance transfer card, the process works a little differently than transferring a balance between credit cards. This usually involves a balance transfer check, says Matt Schulz, chief credit analyst at LendingTree.
“When it comes to how a typical transfer works when it comes to transferring a personal loan, there are probably a few options,” he said. “This can be done with a so-called balance transfer check, which the cardholder would write to the lender of the loan they want to transfer. You can also make the transfer online or over the phone.
A balance transfer check works like a personal check, except the money is taken from your new line of credit. The credit card company mails the check to you, and you can deposit the amount in the bank and use it to pay off your personal loan.
The advantages and disadvantages 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 Fee
High APR after introductory offer expires
Does not address root cause of debt
There may be additional stipulations and limitations
Pros: you 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 moving a personal loan to a balance transfer card,” Schulz says. “How much you can save depends on the loan amount, the interest rate and how long you have left on the loan, but you could save quite a significant amount of money.”
How much can you save? Consider this example.
Larry has a personal loan of $5,000 to 9% interest with a period of three years. 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 continued to make the same monthly payment he had before – $159 – he would 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 during the promotional offer period, he will pay $127.11 more per month, bringing his monthly payment to $286.11. If he took this approach, he would pay back only $5,150 – the amount of the balance transferred and the balance transfer fee – and no interest.
Advantage: you could get out of debt faster
If you paid off your debt during the introductory period, you’ll save money and you’ll also be paid off much faster. In the example above, Larry would need to increase his payments to $286.11 to pay off his debt during the promotional period. By doing so, he would pay off his debt 18 months earlier than originally planned.
Eliminating debt can improve your credit and allow you to pursue other financial goals, such as increasing your retirement savings rate.
Advantage: you can simplify your refund
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 simplify things.
“Balance transfers can even allow you to consolidate multiple debts you have and streamline your finances,” Schulz said.
Con: Balance Transfer Fee
When deciding if a balance transfer is right for you, be sure to consider balance transfer fees. Balance transfer fees are usually 3% to 5% and are calculated based on the amount you are transferring. Depending on the amount of debt you are transferring and the fees, this 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 period, the average APR for credit cards that the assessed interest was 16.44%.
“If you open a balance transfer credit card, be sure to pay it off during the introductory period,” advises Shon. “Otherwise, interest rates will be so high that your debt will be even more astronomical.”
Disadvantage: a transfer does not solve the root cause of the debt
While a balance transfer can be a helpful tool, it doesn’t fix what got you into debt in the first place. Without solving this problem, you could simply make the problem worse and end up in even more debt.
Disadvantage: 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 it to a Citi credit card,” says Shon. “Instead, you must find another bank or an unaffiliated bank for this transfer.”
To find out if you can transfer a personal loan to a balance transfer credit card, contact the card issuer directly.