Can I pay off my loan with a credit card?

Loan repayments looming and you need more financial breathing space? Remember, you’re not alone


If you’re struggling to keep your payments under control, one solution could be to pay off your loan with a credit card, but there are a number of things you need to put in place to make sure this approach doesn’t get you further in debt.

Understanding how to pay off a loan with a credit card

Credit cards can be used to manage debt, as long as you’re disciplined about why you need the card and careful about how you use it. If you're using a credit card to pay off a loan, you’ll need a card that offers a good deal on money transfers. These allow you to transfer up to the full amount on the credit card directly into your current account. Just make sure you ask for a cash transfer and not a cash withdrawal, as you’ll usually be charged interest immediately on cash withdrawals.

Once you’ve arranged a money transfer, you can use this money to pay off the loan gradually or in full, depending on your loan terms and the lender. Some lenders may charge an early repayment fee if you wish to pay off the loan early, so bear this in mind.

For this method to be worthwhile and save you from getting into more debt, you’ll need a credit card which charges 0% on money transfers and/or a long-term low interest rate. Otherwise you could end up paying more in interest charges than your original loan. Be aware that you usually need a good credit score to be offered 0% credit cards and extended introductory rates.

What are the risks of taking out a credit card?

If you’ve applied for a new 0% interest card specifically to pay off other debts, don’t use this card for anything other than the initial money transfer. If you use it for purchases or withdrawals, you’ll be charged interest - and the interest on these types of cards is usually high. This activity will also show up as a negative point on your credit history.

Also, remember you can lose your 0% rate and be charged fees if you don’t meet the minimum monthly payment. It’s good practice to try and pay back more than the minimum amount every month. And consider setting up a direct debit or standing order to make sure you never run late with the payment.

What if the interest-free period runs out?

If you’re unable to pay off the credit card before the end of the interest-free period, you could consider applying for a new credit card with a 0% balance transfer. This will trigger a new interest-free period and give you more time to repay it.

Are there other ways to pay off your loan?

Taking out a credit card in order to pay off a loan may make financial sense, but there are other ways you could pay off debt without taking out more credit.

Using your savings

Dipping into your savings can leave a bitter taste, but if it could considerably reduce your debt and interest charges, it might be worth doing. But remember - paying off a loan earlier than agreed may also come at a price, so check the early repayment charges beforehand. 

Switching to a different loan

You may be able to apply for another loan with a shorter term, a lower interest rate, or a combination of these two factors. This can save you money in the long run, but make sure you can meet the larger monthly repayments. 

Extra payments

You may be able to repay your loan faster by making extra payments each month - known as overpayments. This method can be helpful for people who are unable to pay off their loan in full but want to lessen their debt. If you wish to make overpayments, you need to tell your lender that you are doing so, and there may be charges for this.

This won’t be an option if you took out a loan before February 2011. People who took out a loan after February 2011 can repay up to £8,000 in extra payments over a 12-month period without being charged. 

A debt consolidation loan

Merging all of your debts into one lump sum and paying it off with a debt consolidation loan allows you to pay back debts over a longer period of time, usually at a lower interest rate. These are only suitable for certain people and certain amounts of debt, and they may also come with fees and charges.

What to do when you’re in debt

Being in debt can be extraordinarily stressful, but there are ways to manage your debts which can help reduce the stress. It’s all about being savvy with your borrowing, moving your debt around or consolidating your debts so that you reduce interest rates, and putting in place a plan to clear your debts.

If you need impartial advice or you’re worried about your debt, there are charity organisations that can help. Get in touch with Citizen’s Advice, who will be able to help you manage your finances and point you in the right direction for more tailored advice.

Always seek professional advice before you borrow money, and make sure you understand all the risks associated with each type of loan and the repayment options.

Need more information?

If you want more information on whether to choose a loan or a credit card, visit the Money Advice Service.

Whatever your plans, an Admiral loan could help