Can you pay a loan with a credit card?

The pros of using a personal loan to pay off credit card debt include the potential to get lower interest rates and the ability to consolidate multiple debts into one monthly payment. The interest savings and convenience can help you get debt-free sooner, which should also lead to credit-score improvement.

The cons of using a personal loan to pay off credit card debt include the temptation to overspend after your card’s credit line is freed up, potentially costly fees, and short-term credit score damage. Plus, there could be cheaper ways to get the money for credit card debt consolidation, depending on the circumstances.

It’s important to take a hard look at all the pros and cons before submitting an application for a loan. Let’s go through them in detail.

Pros of using personal loans to pay off credit card debt:

• Lower interest rates: If you have good or excellent credit, you have a decent chance of getting a lower interest rate on a personal loan than you currently have on your credit card. The average APR for all existing credit card accounts is 14.14%. But many of the most popular personal loans offer APRs as low as 4% - 6%.
• Debt consolidation (fewer payments): If you have multiple credit card balances, you can take out a personal loan to pay all of them off at once. Then, you’ll owe one debt the size of the original ones put together. And you’ll have to worry about just one monthly payment, assuming you don’t continue to rack up charges on the credit cards.
• Long-term credit score improvement: A personal loan may enable you to pay off your debt much faster than you normally would, with lower interest rates and possibly higher monthly payments. The faster you reduce your debts, the faster your credit score will improve. Plus, paying off your credit cards reduces their utilization, which also boosts your score.

Cons of using personal loans to pay off credit card debt:

• Temptation to spend more: When you have credit card debt, the amount you owe reduces the amount you can spend on the card. But if you pay off that debt with a personal loan, you free up that credit on the card and have the opportunity to spend more. So if you’re not responsible about your card use after taking out the loan, you could end up in even more debt.
• Fees: When you consolidate credit card debt with a personal loan, the loan could end up being larger than the sum of your credit card debts. That’s because many personal loan providers charge an origination fee that can range from 1% to 8% of the loan amount. Depending on what APR you get on the loan, this extra fee may not be worth it. To qualify for a loan that doesn’t have an origination fee, you’ll typically need a credit score of 660 or better.
• Short-term credit score damage: Whether you’re approved for a personal loan or not, applying for one triggers a hard inquiry of your credit report. This will drop your credit score by a few points. And if your loan includes an origination fee, your overall debt level will increase, which also isn’t great for your score. However, this short-term damage isn’t really anything to worry about unless you’re planning on making a big financial transaction soon like buying a car or a house.
• May not be the best option. If you use a personal loan to pay off credit card debt, you may miss out on a better way to consolidate. You could also move your debt to a balance transfer credit card, for example, and perhaps get an introductory 0% APR for as long as 12-21 months in some cases. Balance transfer cards are best for amounts that you can pay off fully within the introductory period. After that, the card’s regular APR applies. Regular credit card APRs are fairly high compared to the best rates you can get on consolidation loans.

Depending on your situation, it may or may not be a good idea to use a personal loan to pay off credit card debt. One way to help determine if it would be worthwhile is to check for pre-qualification with WalletHub’s free pre-qualification tool. Not only will you see which lenders are likely to approve you, but you’ll also get a good estimate of what rates you’d receive if approved. That can help you figure out much you’d be saving with a personal loan versus the rates on your credit card(s).

Before you decide whether or not to use a personal loan to pay off credit card debt, you also need to understand how the process will actually work in practical terms.

The first step in paying off credit card debt with a personal loan is to apply for the right loan offer. It usually takes a few business days to get a decision and a few more days to receive the funding if you’re approved. Once the funds are in your bank account, you’ll write a check or do a bank transfer to pay the credit card company that you owe. In some cases, the personal loan provider may be able to send the money directly to the credit card issuer rather than going through you as a middleman.

After you pay off the credit card debt, your credit card account will remain open and available for use, unless you decide to cancel it (or the issuer makes that decision for you due to poor performance). And you will continue to make monthly payments to the personal loan provider as promised.

There are a few ways to make a car payment with a credit card, whether you have a loan or a lease. But paying directly with a credit card probably won’t be among them, as auto lenders generally will not accept credit cards. They may or may not even accept direct debit card payments. In order to make car payments with a credit card, drivers must instead jump through a hoop or two and do it indirectly.… read full answer

Here’s how to pay a car payment with a credit card:

• Mobile payment services: One way to pay your car loan or lease with a credit card is to use a mobile payment app such as Venmo or PayPal as a middleman. These applications allow you to transfer money from user to user, and you can fund them with a credit card.

  So, for example, you could use your credit card to pay a friend or family member through the app, and they can then make your car payment for you or give you the money to do it yourself. Just make sure you really trust the person, and be careful because payments may count as purchases or cash advances, depending on the service and the credit card issuer. But either way, there are fees involved. Venmo, for example, charges 3% of the transaction amount.

• Money transfer services: Companies like MoneyGram and Western Union allow you to directly pay a collection of participating billers, and you can fund the transaction with a credit card. However, this may be treated as a cash advance, which would mean expensive fees and interest charges would apply, in addition to the fees charged by the service. You can learn more about how this works from our explanation of how to transfer money from a credit card to a bank account.

• Balance transfer: Several major issuers allow you to transfer an auto loan balance to a credit card: Bank of America, Barclaycard, Capital One, Citi, Discover, PenFed, USAA, U.S. Bank, Wells Fargo and SunTrust. The average balance transfer credit card offers a 0% intro rate for the first 12-13 months and charges a 3% transfer fee.
• Cash advance: Credit card companies often give customers convenience checks, which they can use to pay for things using their credit line when plastic isn’t accepted. But using such a check counts as a cash advance, which comes with an expensive fee and a high APR that kicks in right away. You can also do a credit card cash advance at an ATM using a PIN, if you’d rather get actual cash, but it will be just as expensive (if not more costly, thanks to ATM-owner fees).

The bottom line is that these options are far from ideal and should only be considered if you’re in a real bind, or if you do the math and somehow find an opportunity to save. That could be the case if you’re able to transfer part of an auto loan to a 0% balance transfer credit card, for example.

Yes, you can pay off a personal loan early without a penalty – in most cases, at least. Penalties for repaying a personal loan ahead of schedule are very rare among major lenders. In fact, none of the personal loan providers that WalletHub has reviewed charges a prepayment fee. The purpose of such a fee, when it’s actually used, is to help the lender recoup some of the money it would have earned had the borrower paid interest for the full term.… read full answer

Personal loans generally require payment in equal monthly installments over a set period of time. But paying a personal loan off early can reduce the total cost of the loan by giving it less time to accrue interest. In addition, paying off a personal loan early reduces your overall debt load, which can improve your credit score. Another benefit is that you won’t have to worry about monthly payments anymore or have the stress of a loan hanging over your head for longer than necessary.

So paying off a personal loan early is good, provided you don’t get charged a fee. And it’s always wise to confirm that before submitting payment ahead of schedule. But even when there’s no fee, make sure that you can actually afford to pay off the loan early.

For example, if you have extra cash you could use to pay off the loan but do not yet have an emergency fund for unexpected expenses, it’s better to use the money to establish an emergency fund. And there may be additional situations where there’s something more urgent to use the money for than early loan payoff.