Can You Pay a Loan With a Credit Card, and Is It a Good Idea?
Some lenders may accept credit card payments for loans, but it still might not be the best payment option.
September 16, 2022
It’s time to make your monthly personal loan payment, but you’re tight on cash. So you wonder, “Can I pay a loan with a credit card?”
Yes, it may be possible to use a credit card to make a monthly loan payment. But before you do, consider the disadvantages to decide whether using a credit card for loan repayment is the best choice for you.
We’ll review how to know if you can pay your loan with a credit card and some options for paying off your debt entirely.
Can you pay a loan with a credit card?
The ability to use a credit card to repay a loan depends on whether your lender permits credit card payments. It’s not common to be able to use a credit card for mortgage or auto loan payments, but each lender has its own rules for other types of loans.
For example, when it comes to federal student loans, the Department of the Treasury doesn’t allow loan servicers to accept credit cards from borrowers.
In most cases, you’ll probably need to use a payment method that’s connected to your bank account, such as a debit card or personal check. But your lender can let you know if credit card payments are an option.
How to use your credit card even if your lender doesn’t accept them
Even if your lender doesn’t accept credit card payments directly, a cash advance can be used as a workaround to make a loan payment. Cash advances are essentially loans from your credit card company; you borrow money from your available credit limit.
There are several ways to obtain a cash advance, including:
ATM: You can use your credit card and a PIN to withdraw cash from an ATM. You can get a PIN by contacting your credit card company. It may take several days to receive your PIN. Also, ATMs have a daily withdrawal restriction — you might not be able to take out a large sum of money.
In person: You can get a cash advance against your credit card by visiting your bank and speaking to a teller.
Convenience check: Some credit card issuers will give you convenience checks with your credit card. You can use convenience checks to make payments just like a personal check. But instead of the money coming out of your checking account, it’ll be added to your credit card balance.
While cash advances can be a convenient alternative if you want to use your credit card, they also come with transaction fees and interest. The convenient card offer can become an expensive way to make a monthly loan payment.
Disadvantages of paying a loan with a credit card
You can't deny the ease of using a credit card, so it might be tempting to use one to pay your monthly loan. However, here are a couple of disadvantages of using credit cards to pay loan balances that you’ll want to keep in mind.
Credit card interest
If you pay a loan with a credit card, you’re essentially paying back borrowed money with more borrowed money. If you have the funds available to pay your credit card balance in full within your grace period, this likely won’t be a problem.
However, if you’re only able to make the minimum payment on your credit card, you’ll accrue interest. That means you’ll end up paying interest twice on your borrowed money — once to your loan provider and once to your credit card company.
Plus, you risk accruing a high amount of interest on your credit card balance thanks to how interest is calculated and compounded. Most credit card issuers base their interest calculations on your average daily balance. This means interest charges are accruing every day.
Then, there’s compounding interest. If you’re unable to pay your balance in full when you receive your statement, the unpaid amount plus the interest will become your new balance. That new balance accrues interest each day, which means you’ll end up paying interest on interest.
Potential damage to your credit score
As demonstrated above, if you make your monthly loan payments with a credit card but are unable to pay your statement in full each month, your credit card balance will continue to increase.
As your credit card balance increases, so will your credit utilization ratio, which affects the amounts-owed variable of your FICO score. A high credit utilization ratio can negatively impact your credit score.
How to pay off debt and avoid snowballing interest
While it may be possible to use your credit card to make a loan payment, it can lead to even more debt in the long run. Whether you’re carrying debt from loans or credit cards, it’s important to develop a sustainable plan to pay it off.
Here are some tools and techniques that can help you tackle your debt.
Balance transfer credit cards
Balance transfers are generally used to shift credit card debt to a lower-APR card, but in some cases, you can also transfer loan debt. Saving money on interest is a primary motivation for a balance transfer.
Most commonly, this is accomplished by shifting balances from high-interest credit cards to introductory-rate cards that charge no or low interest for a set period. For example, you might be able to get 0% interest for one year. That pause in interest will keep your balance from increasing.
Keep in mind, though, that you may be subject to a balance transfer fee. Plus, if you don’t pay off your balance by the time the intro rate period ends, you’ll accrue interest charges.
Line of credit
A line of credit is another method you can use to pay down a loan or credit card debt. It’s particularly beneficial if you can secure a lower interest rate than you’re currently paying on your loan or credit card. This helps you save money and can make it easier to pay off your debt more quickly.
Debt consolidation loan
Debt consolidation entails combining various debts (often those with high interest rates such as credit card balances) into one manageable monthly installment. By restructuring your debt, you can simplify your finances and potentially save on interest.
Plus, you’ll know how much your monthly payments will be and how long it will take you to pay off your debt.
If you’re having trouble keeping up with your monthly loan payments, you may be able to refinance. Refinancing can reduce your payment amount by securing a lower interest rate or by extending your loan term.
To receive a favorable refinance offer, you’ll want to show your lender how things have changed since you were originally approved for your loan. For example, has your credit score increased? Do you have a lower debt-to-income ratio? Positive changes in your financial situation may unlock loan terms that you were previously ineligible for.
Does using a credit card to pay a loan make sense for you?
The bottom line is, just because you may be able to pay a loan with a credit card, it doesn’t mean you should. If you’re unable to pay your credit card balance in full each month, you might end up further in debt thanks to daily and compounding interest. Plus, if you take a cash advance, you may incur additional fees.
Instead, try to find a sustainable way to pay off your debt, whether they’re loans or credit cards. This will help you say goodbye to interest charges and free up money for living expenses and long-term personal finance goals.
If you need help with debt management, download the Tally†credit card debt payoff app. The app rolls all your credit card debts into one monthly payment and offers a lower-interest line of credit so you can efficiently repay higher-interest credit cards.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.