If you’re managing multiple high-interest debts and you see yourself missing due dates, getting a balance transfer credit card or a personal loan might be the solution you're looking for. Both options simplify managing your debts by consolidating multiple loans into one monthly payment with a much lower interest rate.
Balance Transfer vs Personal Loan: What’s the Best for You?
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KEY TAKEAWAYS
- Balance transfer cards let you move your credit card debt to a new card, and they often feature a 0% APR introductory offer for six to 21 months.
- Personal loans are helpful if you need to consolidate multiple types of debts and pay them over a longer period. You can also use a personal loan to fund upcoming expenses, not just pay debts.
- If you can get a balance transfer card with a 0% introductory offer and you can pay the balance in full before the introductory period ends, choose balance transfer.
Balance Transfer vs. Personal Loan: How They Work
Balance transfer credit cards allow you to move your high-interest balance onto a new card that typically offers an introductory period with as low as 0% interest. You're essentially getting a "grace period" to pay down your debt without accruing additional interest. During this period, you need to make regular payments to pay off your debt. After that period, the credit card’s standard interest rate will kick in on the remaining balance.
Personal loans provide a lump sum of cash upfront, which you can use for various purposes, including debt consolidation. A personal loan is a fixed-term, fixed-payment loan, often with an interest rate lower than standard credit card rates. Unlike balance transfer cards, it doesn't offer a zero-interest period. But you'll know your monthly payment amount, the exact payoff date and when your debt will be fully repaid.
Balance Transfer Credit Card vs. Personal Loan
Comparison Areas | Balance Transfer Credit Cards | Personal Loans |
|---|---|---|
Interest Rates | 0% for 6 to 21 months; afterward, the card’s regular APR applies | No 0% offer, but the usual APR is often less than that of credit cards |
Fees | Balance transfer fee: 3% to 5% of the transferred amount or a set amount by the issuer, whichever is higher | Loan origination fee: Up to 10% of the loan amount |
Amount of Debt to Consolidate | Typically less than $5,000 | $1,000 to up to $100,000 |
Repayment Terms | Repay entire amount within a stipulated period to avoid interest charges | Make fixed payments each month through the course of the loan term |
Credit Impact | One hard inquiry per new application, but acquiring more credit could improve your credit utilization ratio | Applying for multiple types of loans may result in several hard inquiries, temporarily lowering your credit score. Inquiries of the same kind made between 14 and 45 days are considered as one inquiry. |
Eligible Debt Types | Primarily for consolidating credit card debt, but possible to consolidate other debts | Versatile — can consolidate credit card debt, medical bills, auto loans and more, depending on the lender |
Credit Needed | Requires good to excellent credit if you want to get a good APR or longer 0% introductory period | Generally requires good to excellent credit, verifiable income and a low debt-to-income ratio. However, loans for poor credit are also available. |
How to Request | Online, over the phone, in person | Online, over the phone, in person |
When to Use | If you’re capable of paying your credit card debt within 6 to 21 months | If you’re consolidating credit card debt that will take longer to repay |
Time to Receive Fund or Time Balance Transfer is Reflected | Usually between 2 days to 3 weeks, possibly longer, once the application for a balance transfer card is approved | Some lenders disburse funds on the same day up to 2 days upon approval of the loan. |
How to Choose Between Balance Transfer and Personal Loan
As with any debt management strategy, deciding on one over the other should be based on your circumstances and financial goals. Here are some questions you should ask when deciding what to choose:
How much debt do you need to pay down?
Balance transfer cards are better suited for smaller debts, typically up to $5,000, although a balance transfer with a higher limit is also possible. Personal loans are better for larger debts, often between $1,000 and $50,000. Some lenders even offer higher loan amounts.
What type of debts do you need to pay off?
Balance transfer cards are designed to consolidate multiple high-interest credit card debts. However, some cards allow consolidation of other types of debt. If you have varying types of debts, getting a personal loan is your best bet. You can also use a personal loan for any upcoming expenses.
Can you pay them off within a given period?
Balance transfer cards are a smart move if you can pay off your debt during the introductory 0% APR phase. But once that period's over, interest rates can jump to between 18% and 29.99%.
Personal loans are different. Their interest rate is computed from the start and stays the same throughout the loan's term.
What credit score do you have?
Both balance transfer cards and personal loans require a fair to excellent credit score. Lenders can also grant loans to people with bad or no credit. However, expect less favorable terms; you may get a lower loan limit or a higher interest rate.
How much in fees do you need to pay?
Both methods have fees associated with them. Most balance transfer cards have fees between 3% and 5%. Depending on your credit score, personal loan origination fees may cost anywhere from 1% to 10%. Some loans may also charge you penalty fees if you pay off your balance early or have late payments.
Do you want a lower monthly payment or lower interest payments?
Although a balance transfer offers a shorter period to pay, you’ll get to enjoy lower to 0% interest. Meanwhile, taking a personal loan lowers your monthly payments but increases the total interest you’ll pay. Similarly, a shorter loan term means higher monthly payments, but you'll pay less interest overall.
Pros and Cons: Balance Transfer vs. Personal Loan
While balance transfer credit cards and personal loans have their own great advantages, the drawbacks may help you decide which is better for you.
Balance Transfer Credit Cards and Personal Loans Pros and Cons
Pros | Cons | |
|---|---|---|
Balance Transfer Credit Cards |
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Personal Loans |
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What’s Easier to Apply For?
Applying for balance transfer cards or personal loans requires you to submit an application form online or in person.
Applying for a balance transfer card is usually easier and straightforward but still depends largely on your credit score, history and relationship with the bank. For example, suppose you’ve been a long-time client of American Express and have a good credit history. Chances are higher that you’ll get a high credit limit with 0% APR and a longer introductory period.
Banks like Citi and Chase often roll out pre-approval or prequalifying offers by doing a soft inquiry. Remember, this is not considered as an approval. When you formally apply, they will dive deeper with a hard inquiry to thoroughly assess your credit standing before making a final decision.
A personal loan requires a more detailed process. Lenders will require more information, such as proof of income and an inventory of your current debts. However, this option might offer a higher likelihood of approval if you have a diverse source of income, apply for a secured loan and offer collateral, or have a co-signer or co-borrower. If you’re taking on a personal loan from a bank, you’ll have a higher chance of getting approved if you already have an account with them.
What’s good about applying for a personal loan is you can shop for better rates without hurting your credit score. Once you have narrowed down your lenders, request a prequalification. This way, you’ll know how likely you are to get approved for a loan.
Which One to Choose
While both offer a simpler payment plan, one may be better for you.
Choose Balance Transfer if:
- You have one or multiple credit card debts with higher interest rates.
- You want a simpler application process.
- You can pay off your balance within the introductory period.
- You have a good to excellent credit score.
Choose Personal Loan if:
- You have multiple types of debts with high interest rates.
- You have a higher loan requirement.
- You require a longer repayment period.
Next Steps
If you're going for a Balance Transfer, pick the best card that suits your needs. Consider your credit score and the intro APR period. Most balance transfer cards have a 15-month intro period, but you might need longer, like 18 months.
Applying for a balance transfer card takes two days to six weeks. Remember to keep making minimum payments on your old card until it is paid off completely to avoid late fees and hurting your credit score. After doing a balance transfer, keeping your old card active will help maintain your credit score.
If getting a personal loan is better for you, start by listing all your debts, like credit cards and loans. Note their amounts and interest rates so you’ll know how much you need to pay. Work out a monthly payment you can afford and shop around for the best rates and lenders available.
FAQ About Balance Transfer vs. Personal Loan
Here are answers to some common queries to help you understand the differences between balance transfers and personal loans.
Can you transfer the balance of a personal loan?
Some credit card companies allow you to transfer the balance of a personal loan to a credit card. Clarify this with the credit card company before applying for a balance transfer card.
Is a balance transfer better than a personal loan?
It depends on your circumstances. Balance transfers could be a great option if you're able to pay off your debt within the introductory period with low or zero interest. However, personal loans might be more suitable if you need a longer repayment term or if your debts are more diverse.
Can I transfer a credit card balance to a personal loan?
Absolutely. Many people use personal loans to consolidate credit card debt. This could be a strategic move if the personal loan's interest rate is lower than that of your credit cards.
Which is better for my credit score: a balance transfer credit card or a personal loan?
Both can lead to short-term dips on your credit score. But if you can pay your balance on time, you should see your credit score improve.
What are my options if I can’t get a personal loan or a balance transfer card?
If a balance transfer card or debt consolidation won't work, consider specialized lenders, credit counseling or negotiating with creditors. Bankruptcy is another choice, but it should be a last resort due to the major impact on credit scores.
Is a personal loan similar to a cash advance?
Cash advances, accessible via credit cards, offer immediate funds but carry high fees and interest rates with no grace period. On the other hand, personal loans are formal borrowings with lower interest rates and longer repayment terms and are suitable for larger financial needs.
About Doug Milnes, CFA
Doug Milnes is a CFA charter holder with over 10 years of experience in corporate finance and the Head of Credit Cards at MoneyGeek. Formerly, he performed valuations for Duff and Phelps and financial planning and analysis for various companies. His analysis has been cited by U.S. News and World Report, The Hill, the Los Angeles Times, The New York Times and many other outlets.
Milnes holds a master’s degree in data science from Northwestern University. He geeks out on helping people feel on top of their credit card use, from managing debt to optimizing rewards.
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Editorial Disclosure: Opinions, reviews, analyses and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any bank, credit card issuer, hotel, airline, or other entity. Learn more about our editorial policies and expert editorial team.
Advertiser Disclosure: MoneyGeek has partnered with CardRatings.com and CreditCards.com for our coverage of credit card products. MoneyGeek, CardRatings and CreditCards.com may receive a commission from card issuers. To ensure thorough comparisons and reviews, MoneyGeek features products from both paid partners and unaffiliated card issuers that are not paid partners.