Paying Off a Loan with a Credit Card: Is it Possible?

When you borrow money, you usually pay it back in cash through your bank or with a check. If you’re short on cash or want to get cash rewards, you might wonder if you can use a credit card to pay off the loan. You can, but usually, it’ll cost you more.

Can you pay off a loan with a credit card?

Paying off a loan with a credit card is possible, but it’s often more complicated and expensive. It’s better to pay from your bank if you can. Most lenders don’t take credit card payments; they prefer bank transfers or checks. But you can still use your credit card to pay off loans. Here’s how it works:

Balance Transfer Credit Card

A balance transfer credit card helps you shift your debt to a card with a lower interest rate. Usually, these cards offer a low interest rate when you move your balance. The best ones give you 0% interest for 12 months or more.

If you’re thinking about using a credit card to pay off a loan, doing a balance transfer is probably the cheapest way to go. But remember:

• Not all balance transfer cards let you transfer loans; some only allow credit card debt. Make sure to ask the credit card company first.
• After the starting time, the interest rate will increase. If you can’t pay off the balance by then, you might have to pay a lot more in interest.
• There’s usually a fee of 3% to 5% charged by the credit card company for doing a balance transfer.
• You can’t transfer more than your card’s credit limit, including the loan amount and any transfer fee.

Cash Advances

When you take out cash using your credit card, it’s called a cash advance. You can do this at an ATM by creating a PIN for your credit card. Or, the credit card company might give you checks linked to your account, which work like regular checks. But it’s best to use cash advances only if you really have to. They usually have higher interest rates than regular purchases, and interest starts right away—there’s no grace period like with normal credit card purchases.

Redeem Credit Card Rewards

A good answer would clearly explain how credit card rewards can be used to make loan payments and mention the different ways rewards can be redeemed. It should also acknowledge that not everyone may have accumulated enough rewards to use this option. Now, considering the various options, you could either redeem cash back rewards to your bank account or receive them as a check, depending on your credit card. If you’ve been using a rewards card and need more money to pay off a loan, this could be a good option.

Should you use third-party payment services?

Some people say you can pay off a loan with a credit card using a service like Plastiq. But Plastiq filed for bankruptcy in May 2023. Even though it’s still operating, it’s not a good idea to use it. Bankruptcy means the company’s having money problems, which could affect your payments. If your payment is late or doesn’t go through, you might get charged a late fee, and it could hurt your credit score.

So, should you pay a loan using a credit card?

It’s usually not smart to pay a loan with a credit card, but why you’re doing it matters. Here are some common reasons:

• If you can’t pay the loan on time, using a credit card might help you avoid a late fee.
• But, it’s like borrowing from one to pay the other, and credit cards often have higher interest rates, making them tough to pay off. Before resorting to your credit card, explore other options, like talking to your lender about hardship programs.
• If you’re looking to pay less interest with a balance transfer card,. These cards can be good because they often start with no interest. Make sure you can pay everything back before the no-interest period is over.
• If you want to get rewards for paying off your loan, it’s a bit tricky. Usually, credit cards only give rewards for things you buy, not for balance transfers or getting cash. Plus, there are often fees involved.

How about paying a mortgage?

You can use a credit card to pay your mortgage, but it’ll probably cost you more. Many mortgage lenders don’t accept credit card payments right away. You’d have to find another way, like getting a cash advance. But that usually comes with extra fees and immediate interest charges, so it’s not a good idea.

Can I still get rewards for using a credit card to pay off loans?

Usually, you can’t earn credit card rewards for paying loans. If you get cash or do a balance transfer, you won’t earn any rewards. But if you use a third-party service, you might get rewards. But the fees might cancel out what you earn in rewards.

Know When to Use Your Credit Card to Pay Off a Loan

If you’re considering using a credit card to pay off a loan, it’s crucial to understand the potential costs and implications involved. While options like balance transfers or redeeming rewards may seem appealing, they often come with added fees and risks. Remember to explore alternative solutions, such as speaking with your lender about hardship programs, before resorting to your credit card. Ultimately, making informed financial decisions and prioritizing long-term financial stability are key.