American Hope Resources - Help & Assistance Programs

The Pros And Cons Of Using Credit Cards As Personal Loans

Seeking a lender for a personal loan may seem like too much work when you have a credit card sitting in your wallet. Find out if using that card for a loan is a smart move.

If you need help right away, this relief program will direct deposit a short term loan into your bank account. Review the terms of this funding closely before accepting these funds.

Whether you have just lost your job, had an unexpected emergency, or some other unfortunate event, needing quick cash can call for a personal loan.

There are several ways to get a personal loan, but what if you don’t want to go through all the trouble of doing so?  What if asking a bank or online lender for a relatively small amount seems like more trouble than it’s worth? Could a credit card save the day? 

It may, and we’ll look at the pros and cons of using one when cash runs dry.

The Situation

For the purpose of this article, let’s assume that you need $1,000 to fix your car that needs a significant repair.  As it stands, it does not run, and this makes getting to and from work on your long commute almost impossible. In short, you cannot delay another day in getting the repair.

The Pros of Using a Credit Card for a Loan

In this hypothetical situation, you could charge the $1,000 to the card, provided the repair shop accepts it.  If your card has an introductory APR of zero percent interest for 12 months, you could get instantly get that loan at virtually no cost.  As long as you pay it off before the 12 months are over, you should be good to go.

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The Cons of Using a Credit Card for a Loan

What if the shop only accepts cash?  In that case, using a credit card may not be such an affordable option.

Sure, you could get the money instantly without having to do much legwork in the form of researching lenders and filling out applications.  However, cash advances from cards often have high interest rates.

If your card has no promotion that offers zero interest for 12 months, the cost of using it to charge the repair will be higher.  Credit cards usually have higher interest rates than loans, and if you have bad credit, your APR may be much higher.

Beyond high interest rates, adding a major expense to your card could hurt your credit, especially if you must max it out.  Keep this in mind before pulling the trigger.

Other Options

What should you do if your card has a super-high interest rate and a costly cash advance?  Instead of using it for your loan, seek lending from another source.

You can get a personal loan from various options, such as a bank, credit union, or an online lender.  The lower your credit score, the more you’ll end up paying for the loan, but if it’s a better option than a credit card, go for it.

Before settling on a loan, do your due diligence to ensure the lender is trustworthy.  Banks or credit unions are often safer in this regard.

Searching for an online lender should involve a visit to the U.S. Consumer Financial Protection Bureau (CFPB) database.  It contains up-to-date complaints on financial products that could protect you from bad lenders looking to steal your money or data.

Eric Tomasso