Can You Pay Off a Loan with a Balance Transfer?

March 29, 2019

By Sherry Keyles

Do you have a loan with a high-interest rate you’re trying to pay off? A balance transfer credit card with a 0% APR offer might be the answer.

Balance transfers aren’t just for credit card debt. You can transfer balances for loans such as auto or personal loans and take advantage of the introductory 0% APR offers to save money on interest.  

By using your credit card to pay off your loan, the loan account is closed and the balance becomes credit card debt instead. Other types of loans you can transfer include home equity loans, student loans and loans on furniture and appliances.

To save the most on your existing debt, look for the longest 0% introductory APR period you’re eligible for. No-interest introductory offers generally range from 12-18 months although you can find some up to 21 months.

When deciding whether to transfer your debt, do the math on whether you will actually save money on interest. You will also want to evaluate your financial situation to ensure you can pay off your credit card before the introductory 0% APR period ends.

While there are benefits to transferring your loan to a balance transfer credit, there are also some considerations you should evaluate as well.

Benefits of Transferring Loan Balance to Credit Card

  • Save money - Balance transfer cards give you a chance avoid paying interest on your existing loans for the 0% APR introductory period - assuming you pay off the loan before the 0% period ends.
  • Pay off your loan debt faster – By not paying interest on your transferred debt, more of your repayments go directly to your loan’s principal.
  • Ownership of vehicle title - If you have an auto loan, the loan will be considered paid off and you will receive the title to your car.
  • Pay down your debts with one payment. If you have several balances, you can consolidate them to a balance transfer credit card and only have to pay one monthly bill. Plus, you’ll deal with one ideally low APR for all of your debt.

Things to Consider Before Transferring Your Loan to a Balance Transfer Card

  • Eligible issuers - Most credit card issuers allow the transfer of loan balances to a balance transfer credit card; however, no issuers let you transfer debt between their own produces. If you have a Citi personal loan, you can’t transfer the balance to a Citi credit card. You should confirm the issuer you are planning to use accepts loan balance transfers.
  • Time to pay off debt –Ensure you can pay off your loan debt before the end of the introductory 0% APR period. Loans almost always have lower interest rates than credit cards so if you don’t pay off the balance by the end of the introductory period, it may be cost more than paying the interest on the loan.
  • Balance transfer limit – Most cards limit how much you can transfer. While most allow a transfer up to your credit limit, some may only allow transfers up to 80% for your credit limit.  
  • Balance transfer fee - Most credit cards charge a fee to transfer a balance — typically 3% to 5% of the amount transferred. Depending on the amount of the transferred balance, the transfer fee may be more than amount you will save on interest, especially if you pay balance off quickly.
  • Introductory offer not available to everyone – A balance transfer credit card with a 0% APR offer isn’t an option for everyone. Balance transfer cards generally require very good or excellent credit score. If you aren’t eligible for a 0% offer, you may qualify for a lower APR but you will need to determine if you will save any money if you still have to pay interest.
  • Credit score – When you transfer your loan to a balance transfer card, the balance is now considered unsecured debt. Credit reporting agencies view unsecured loans/revolving debt much less favorably than secured loans. Making payments on time won’t boost your score much. Also, your overall credit utilization, which is a big part of determining your credit score, will increase drastically. When you use too much of your available credit, your credit score usually drops, affecting interest rates on any future loans or credit cards you might apply for.

Other fees - Before you decide to transfer your loan balance to a credit card, read the terms carefully to determine if there are any additional fees such as an annual fee or financial transaction fee. Also, review the late fees and penalty APR. You don’t want any surprise fees after you already transfer the balance.

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