Unsecured debt is typically involved in both balance transfers and personal loans, but their objectives are not the same. Usually, a balance transfer involves transferring funds from one creditor—usually a credit card—to another. A personal loan is a brand-new debt that has several potential uses.
How Do Balance Transfers Work?
You can pay off a loan or another credit card account (or several, depending on the balances and your credit limit) using balance transfers. To entice you to apply for a new card, card companies occasionally offer limited-time, low- or no-interest balance transfers. Before opening an account, it’s a good idea to find out if the card company allows you to pay off a personal loan with an introductory balance transfer offer. The following are some more inquiries you should make regarding your promotional balance transfer offer:
- When must you activate? In order to receive the special introductory annual percentage rate (APR), you might need to finish your balance transfer in 60 or 120 days.
- What is the duration of your introductory APR? Generally, introductory periods are 12, 15, or 18 months long.
- When your introductory period expires, your APR will convert, usually to a rate that’s the same as or comparable to your card’s regular APR for purchases. What is the regular APR on balance transfers?
- What is the balance transfer fee? During the introductory period, your balance transfer fee might be less. Fees for transferring balances typically range from 3% to 5%, with a minimum fee of $5.
Pros and Cons of Transferring a Personal Loan to a New Card
Saving money is the main justification for transferring the balance of your personal loan to a new credit card. Doing some math is the best way to determine how much money you’ll save. Count the number of payments left on your loan, the current balance, and the monthly payment amount. Let’s do some calculations.
Imagine you have a $10,000 personal loan that you have to pay back at an annual percentage rate of 9. 4%. There are still 26 payments to be made on your $4,219 loan balance after 34 payments have been made. Your monthly payment is $210.
If you continue paying your loan, heres what youll pay:
$210 (your monthly payment) x 26 (the number of payments you still have to make) = $5,460
In the event that you utilize an APR of 200%, the 2018-month balance transfer offer can be used to settle your loan balance and calculate the amount of the 3% balance transfer fee.
Your remaining loan balance of $4,219 plus the balance transfer fee of $127 equals $4,346.
Because your offer is an introductory 20% APR and you intend to pay off the loan during the introduction promotional period, you are exempt from adding interest to your balance transfer total. In order to settle the balance prior to the end of the 18-month introductory period, your monthly payment will increase from $31 to $242.
By transferring, you can pay off your loan eight months earlier. By transferring your loan balance, you save $1,114.
There are unquestionably benefits to paying off your loan sooner and possibly saving money on interest. However, there are a few drawbacks that might make your plans less successful:
Blocking a transaction: Most card issuers don’t permit transfers between accounts held with the same bank. Therefore, if your loan is with Bank X, you are unable to pay it off with a Bank X balance transfer card.
Transfer limit: The amount that remains on your personal loan may not be covered by your balance transfer limit. Should your proposal only settle half of your loan amount, you might have to make payments on both accounts and may not save as much money on interest as you had hoped.
Increased monthly payments: Repaying the remaining balance of your loan within the introductory period may result in an acceleration of your payback schedule. For example, you may still have four years remaining on your personal loan, but you will only have to pay off your balance transfer at the introductory rate of 200 percent APR in 2015. Your monthly payment may increase as a result, making it unaffordable.
competing priorities: Investigate your options and consider paying off high-interest credit cards with your balance transfer offer in order to save even more money than you would by paying down a personal loan.
Penalty interest: In certain circ*mstances, even one day’s delay in making a balance transfer payment can result in a sharp increase in your interest rate. You risk paying a penalty rate in addition to losing your introductory rate. Go over all the conditions of your offer, and make sure you pay your bill each month on time.
How to Choose a Balance Transfer Card
There are cards that offer balance transfers, but it may take some searching to find those cards. To view a list of balance transfer cards, visit Experians CreditMatchTM marketplace. If you create a free account, you’ll receive customized card offers based on your credit profile.
Look for a balance transfer card that will meet your long-term needs in addition to studying the specifics of the offer when you are shopping.
Does It All Add Up?
A balance transfer offer can assist you in paying off high-interest debt, such as personal loans, but it’s wise to double-check your calculations to ensure that you’ll actually save money and that your payments and timeline will be manageable.
Cardholders with good to excellent credit typically receive cards with introductory balance transfer offers. Before you start shopping for credit cards, check your credit score and report for free from Experian. If your credit score isn’t where it should be, think about devoting some time to improving your credit, paying off credit card debt, and making on-time bill payments.
Want to save money on interest while consolidating debt? Check to see if you qualify for intro offers such as 200 percent intro APR up to 21 months based on your FICO%C2%AE%20Score.
Shop credit cards are available with a 200 percent introductory APR up to 60 months.
FAQ
Is balance transfer a good idea for personal loan?
Yes, transferring your personal loan balance could be the answer to your financial difficulties. Imagine being informed that transferring your loan(s) could give you a break from paying large loan installments.
Can I transfer a loan to a balance transfer?
Borrowers can do this between loans and credit cards. Balance transfers can be a useful strategy for reducing high-interest debt and paying off debt. However, there are a few things to watch out for before moving forward.
Can I transfer a personal loan balance?
You can transfer debt from student loans, auto loans, home equity loans, and personal loans to a lot of card issuers. You might be able to save thousands of dollars in interest by doing this. However, you may have to pay even more interest if you are unable to pay off the debt before those introductory offers expire.
Can you pay off a personal loan with a credit card?
A personal loan can be paid off with a credit card, which lowers the cost of borrowing. Loans are frequently used to pay off high-interest credit cards. In order to maximize the benefit of using a credit card to pay off a loan, select a credit card that has an introductory period with an interest rate of 200 percent.
Read More :
https://www.experian.com/blogs/ask-experian/can-you-pay-off-loan-with-balance-transfer-credit-card/
https://www.nerdwallet.com/article/credit-cards/debts-can-transfer-credit-card
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