Paying Personal Loan with Credit Card? Know the Risks (2026)

Facing a financial crunch can be daunting, especially when juggling multiple debts. If you're exploring ways to manage your personal loan more effectively, you might be wondering, "Can I pay a personal loan with a credit card?" This question is more common than you might think, and the answer isn't always straightforward. Understanding your options, the implications, and the process can help you make an informed decision that aligns with your financial goals.

Understanding Paying a Personal Loan with a Credit Card

At its core, paying a personal loan with a credit card involves using the credit card to pay off part or all of your personal loan balance. This strategy can be beneficial if your credit card offers a lower interest rate compared to your personal loan. However, it's essential to be aware that not all lenders allow direct payments from credit cards to personal loans. In many cases, this process involves a balance transfer or cash advance.

Balance transfers can offer a promotional period with low or even 0% interest, providing temporary relief as you manage your debt. However, these offers typically come with a balance transfer fee, often ranging from 1% to 3% of the transferred amount. In addition, once the promotional period ends, the interest rate can rise significantly, sometimes exceeding 20%.

Current Market Information and Options

In 2026, interest rates for personal loans in Australia generally range from 6.49% to 12%, depending on the lender and your credit profile. Credit card interest rates, on the other hand, can range from 9.99% to 24.99%. Given this disparity, it might seem enticing to use a credit card with a lower interest rate to pay off a higher-interest personal loan. Here’s a comparison of typical costs involved:

When considering this option, eligibility criteria must be assessed carefully. Credit card companies typically require a good credit score, stable income, and a demonstrated ability to manage existing debts before approving a balance transfer or cash advance.

Steps to Pay a Personal Loan with a Credit Card

Here’s a step-by-step guide on how to approach paying off a personal loan using a credit card:

1. Evaluate Your Financial Situation: Assess your current financial standing, including your income, expenses, and existing debts.
2. Check Your Credit Card Terms: Determine if your credit card allows balance transfers or cash advances to pay off loans.
3. Compare Interest Rates: Ensure the credit card offers a lower interest rate than your personal loan. Look for promotional balance transfer rates.
4. Contact Your Lender: Confirm with your lender whether they accept payments from credit cards and if any fees apply.
5. Plan for the Long Term: Create a repayment plan to address any remaining balance after the promotional period ends.
6. Execute the Transfer: If all factors align, initiate the balance transfer or cash advance to pay off your personal loan.

Tips and Considerations

Before proceeding, consider these expert insights:

• Be Mindful of Fees: Balance transfer fees can offset potential savings. Calculate whether the fees outweigh the interest savings.
• Beware of Rate Hikes: After the promotional period, interest rates can rise significantly. Ensure you can manage this increase.
• Consult with a Professional: Discuss your situation with a financial advisor or mortgage broker, like those at Esteb and Co, who have access to a wide panel of lenders and can offer tailored advice.
• Maintain a Good Credit Score: Balance transfers and cash advances can impact your credit score. Keep your credit utilisation low to mitigate any negative effects.

Frequently Asked Questions

Here are some common questions about using a credit card to pay off a personal loan:

1. Can I directly use my credit card to pay a personal loan?
   Generally, direct payments are not possible. You'd need to use a balance transfer or cash advance.
2. Is it a good idea to pay a loan with a credit card?
   It depends on the interest rates and fees. If the credit card offers lower rates and minimal fees, it might be beneficial.
3. Do all credit cards offer balance transfers?
   No, not all credit cards offer balance transfers. Check with your provider for available options.
4. What happens if I can't pay off the balance transfer in time?
   The interest rate will likely increase significantly after the promotional period, potentially increasing your debt.
5. How does paying a loan with a credit card affect my credit score?
   It can impact your credit utilisation ratio, which may affect your score. It's essential to manage your credit wisely.
6. Are there alternatives to using a credit card to pay off a loan?
   Yes, alternatives include refinancing the loan or consolidating debts through a personal loan with a lower interest rate.