Can I pay off a loan with my credit card? If yes, then should I? These questions may arise in your mind while dealing with a loan. The answer is yes, you can use your credit card to settle your loan, but there can be many things that need to be kept in mind.
Just because the usage is available doesn’t necessarily mean that you should consider it. A credit card can help you save money if appropriately utilized. You would, however, have to do a lot of calculations.
If you consider using your credit card to pay off your debt, the below-provided information could come in handy.
It is a card issued by your respective bank to make purchases. It appears similar to a debit card in shape and size but works differently. With a credit card, you can make purchases and pay the amount later. In other words, it lets you buy without deducting the balance from your savings.
The bank approves you a set limit of credit till which you are allowed to make payments. Once you purchase something, it gets added up to your monthly expenditure history, and you have to pay it before a fixed amount of time. Failure to do so will result in you paying penalties and reducing your credit score.
Using Credit Card to Pay off Loans
Not all lenders approve of you using a credit card to pay off the loan. But some may agree to it and can even explain to you the procedure and everything else. Here are some things you need to consider when deciding to pay your installments using a credit card.
- Make sure your lender or the bank approves it and gather all the information regarding your loan type.
- By using a credit card, you are taking a small loan from the bank. So all you’re doing is taking a loan to pay off another loan, which can be a bit typical in the long run.
- Make sure your credit card limit coincides with the amount that needs to be paid off.
- Compare your credit card interest to your loan interest.
- The bank grants you a grace period to pay back the amount before which no interest or penalties will be charged, so make sure to pay your EMI within this duration. Otherwise, you would end up paying more.
- If you pay your loan on time and keep your credit payments in check, it would help increase your credit score, which can help you in the long run.
- Only use a credit card if you are sure that you will make your payments on time.
- Do not make paying off your debts with a credit card your regular habit. We consider using it only when you are unable to complete your monthly payments from your savings.
- Some banks charge a transfer fee of 1-2%. We recommend collecting all the necessary information from your bank or lender before implementing.
Personal Loan debt or Credit Card debt?
In a personal loan, the interest rate is fixed, and the time limit is generally longer. The interest rates are usually low as compared to credit card interest rates. Whereas in a credit card debt, the interest can rise subsequently, and it can gradually increase over time.
Some banks allow you a deferment period during your loan tenure, so you can make use of it if you are unable to pay on time. While if you delay in paying your credit card debt, then your credit score can decrease. A low credit score can diminish your chances of applying for a loan in the future.
Credit card debts are riskier than Personal loan debt, so it is better to have loans instead of credit debt. Credit card debts may compel you to pay more money rather than save. That is why it is better to weigh everything beforehand.
Paying loan with Right Credit Card
There can be a lot of different types of credit cards offering various promotions. Choose the one that fits your area of interest. Here is what you should look for a credit card that you would use to pay off your loan.
- Select a card that offers comparatively lower interest rates.
- Longer time limit to pay off the balance.
- Additional promotions and offers.
- Lessor no transfer fee applied.
Repayment Plan
You may require to do a lot of math while dealing with credit cards and loans. You are shifting your funds from different areas and additional charges and interests are also applicable. That is why it is essential to have a well-calculated repayment plan. Some things you might need to consider are stated below.
- Measure all the pros and cons carefully.
- Write down everything, such as the amount of money, interest rates, and time limit.
- Check out all the previous payments and keep future ones up to date.
- Keep in check the amount of debt left to be paid after every installment.
Although paying off your loan with a credit card can be a bit risky, it might be helpful if you make the proper calculations and keep everything in check. But just because you are allowed to do a thing does not mean that you should do it.
A lot of people get hit by more debts due to frequent usage of a credit card. Paying off a debt by using debt is as insecure as it sounds, but some people can make it work. Other things to keep in check are your credit card history and credit score.
When done correctly and planned, this method can even help you save some money while also clearing off your debt. We recommend using your credit card to pay off debt only when you are a hundred percent sure of handling it well.
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