Balance Transfer Credit Card vs. Personal Loan: Which Is the Better Option for Debt Repayment?

Balance transfer credit cards and personal loans may lead to savings in repayment of existing debt, but both come with their share of drawbacks.

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Last Updated: 10/18/2022

A balance transfer lets you transfer debt from one credit card to another. Ideally, the card to which you transfer the debt will have a lower APR than the one you wish to pay off. Some balance transfer cards come with time-based 0% APR offers too. For instance, the U.S. Bank Visa® Platinum Card comes with a 0% APR offer on balance transfers for 20 months, whereas the Wells Fargo Active Cash® Card offers 0% APR on balance transfers for 15 months.

A personal loan, on the other hand, can be used to pay off existing credit card debt. But it can also be used for other legitimate purposes. Unlike balance transfer cards, personal loans do not come with 0% APR offers.

If you plan to repay your existing credit card debt within a year or a year and a half, you may benefit by getting a credit card with a 0% APR offer on balance transfers. However, if you think it'll take longer, getting a personal loan with a low ongoing APR might be the better option.

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MoneyGeek’s Takeaways

It is common for balance transfer credit cards to come with time-based 0% APR offers.

Personal loans may come with lower APRs than regular APRs of balance transfer cards.

Personal loans tend to come with higher credit limits than balance transfer cards.

Is a Balance Transfer the Same as a Personal Loan?

While there are similarities, a balance transfer is not the same as a personal loan. For starters, balance transfers are linked to credit cards, whereas personal loans are not. A balance transfer credit card might be a suitable option if you wish to pay off high-interest credit card debt in a relatively short period of time. Personal loans, on the other hand, tend to serve as better long-term solutions.

If you transfer an existing credit card balance to a new card with a 0% APR offer, you need to pay off the entire amount before the end of the promotional period to avoid interest charges. After this period, any outstanding amount starts accruing interest at the card’s regular balance transfer APR.

If you wish to pay off your credit card debt over a prolonged period of time or if you need to repay a large debt, you may consider looking at what personal loans have to offer. While personal loans tend to come with higher credit limits than credit cards, they also can come with a comparatively low APR.

Depending on your situation, you can get either a personal loan or a balance transfer to repay existing credit card debt. In both cases, eligibility and the interest rates you get depend on your creditworthiness.

>>MORE: BEST BUSINESS CARDS FOR BALANCE TRANSFER

Balance Transfers and Personal Loans at a Glance

  • Balance Transfer
    Personal Loan
  • How to Request

    Online, over the phone, in person

    Online, over the phone, in person

  • When to Use

    Repaying credit card debt within 12
    to 21 months

    Consolidating credit card debt that'll
    take longer to repay

  • Repayment Terms

    Repay entire amount within a stipulated
    time period to avoid interest charges

    Make fixed payments each month
    through the course of the loan term

  • Credit/Loan Amount Limits

    Usually up to a card's available credit limit

    Up to $100,000

  • APR Ranges

    0% with intro APR offers.
    A card's regular balance transfer APR is
    usually in line with its purchase APR.

    3.22% to 35.99%

  • Other Fees

    Balance transfer fee: 3% to 5% of
    the transferred amount

    Loan origination fee: Up to 6% of the loan amount
    Prepayment penalty: Up to 5% of the loan amount

Pros and Cons of Balance Transfer vs. Personal Loan

There is no clear winner in the personal loan vs. balance transfer comparison because both have potential advantages and drawbacks. What is important in both cases is that you have a clear repayment plan in place before you decide on a course of action. You should also take your spending patterns and individual requirements into account at the very onset. Looking at the pros and cons of balance transfers and personal loans will help you determine which one might work better for you.

Pros and Cons of a Balance Transfer

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Pros
  • Several credit cards come with 0% APR offers on balance transfers.
  • Introductory 0% APR can extend up to 21 months.
  • Some cards come with 0% APR offers on purchases too.
  • You pay no interest charges through the course of the promo period.
  • All your payments go toward bringing down the principal amount.
  • A number of balance transfer credit cards offer rewards/cash back on purchases.
  • Finding balance transfer credit cards with no annual fees is fairly easy.
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Cons
  • A balance transfer card’s regular APR kicks in after the promo period ends.
  • Balance transfer fees can be up to 5% of the transferred amount.
  • Late or delayed payments may lead to termination of the 0% APR offer.
  • You typically need good to excellent credit to qualify.
  • They are not suited for repaying large debts.
Pros and Cons of a Personal Loan

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Pros
  • You can choose from different loan terms, typically ranging from one to six years.
  • You can borrow large sums of up to $100,000.
  • You will have fixed monthly payments for the entire loan term.
  • Interest rates can be lower than regular interest rates on balance transfer credit cards.
  • You can use the loan proceeds for reasons other than repaying debt.
  • It can help add to your credit mix and improve your credit score.
  • They are usually processed quicker than balance transfers.
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Cons
  • A loan origination fee may apply.
  • Repaying the loan ahead of time might come with a prepayment penalty.
  • There is no possibility of a 0% APR offer.
  • You must adhere to the predetermined payment plan.
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MONEYGEEK EXPERT TIP

If you’re thinking about getting a balance transfer credit card, pay attention to the duration of the promo 0% APR period, regular APRs, balance transfer fees and annual fees. Our experts have scrutinized more than 1,600 consumer credit cards, several of which come with balance transfer offers, so that you can select one with ease.

Should You Get a Personal Loan, a Balance Transfer Credit Card or Both

Making a balance transfer or applying for a personal loan can be helpful when you need to pay off existing credit card debt. However, determining which of the two might work better requires paying attention to factors such as the amount you owe, the interest you might need to pay, your creditworthiness and your ability to make repayments.

  • The amount you owe: While balance transfers are more suitable for paying off small debts, personal loans can help you clear significantly large debts. Unfortunately, whether you get a personal loan or a balance transfer credit card, you won’t know the limit you qualify for until your application is approved. Several personal loans come with minimum limits, which you can use to arrive at a short list. With credit cards, balance transfer limits are typically a fraction of their overall credit limits.
  • Interest rates: Several balance transfer credit cards come with 0% APR offers that stay in place for 12 to 21 months. However, any remaining balance starts accruing interest at a card’s regular APR once the promo period ends. While personal loans do not have 0% APR offers, their APRs can be lower than regular balance transfer APRs of credit cards. If you manage to repay your entire debt before the end of a balance transfer credit card’s promo period, it might be the more cost-effective option.
  • Fees: Credit cards with balance transfer offers usually charge 3% to 5% of the transferred amount as fees. If you get a personal loan, you might need to pay a loan origination fee of up to 6%, although some issuers do away with this fee. Depending on your loan provider, you might be burdened with a prepayment penalty if you wish to pay off the loan earlier than scheduled. Both come with varied late and returned payment fees as well.
  • Creditworthiness: Qualifying for a balance transfer credit card usually requires that you have good to excellent credit. On the other hand, people with average credit can choose from several personal loan options. If the only form of credit you currently use is credit cards, getting a personal loan will add to your credit mix. This, in turn, has a positive effect on your credit score. Since a personal loan is regarded as an installment loan, using it to repay credit card debt has a positive effect on your credit utilization ratio (the amount you owe in comparison to your total available credit limit). This, too, helps improve your credit score. Bear in mind, though, that applying for a new balance transfer credit card or a personal loan will bring your credit score down by a few points.
  • Making repayments: With a balance transfer credit card, you have the option of paying any amount over the minimum money payment. With a personal loan, you need to make fixed monthly payments through the course of the loan. Take a look at how much you can afford to pay each month and determine if you might be able to repay all or a large chunk of the debt within a credit card’s balance transfer promo period. If you’re going the personal loan route, check the variation in monthly payments for different loan terms to determine which fits your bill the best.

Using a Combination of Both

Consolidating and repaying debt by getting a balance transfer credit card and a personal loan is an option. In such a scenario, you may get a balance transfer card with a 0% APR offer to repay high-interest credit card debt within the card’s promo period. If you cannot transfer the entire amount you owe to your new card, or if you feel you might not be able to repay it completely before the end of the promo period, you may consider getting a personal loan with a low APR to cover the remaining amount. This way, you don’t have to worry about paying high interest charges once your card’s regular APR comes into effect.

>> More: How Much Money Could a Balance Transfer Save You?
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MONEYGEEK QUICK TIP

Getting a personal loan to consolidate your debt may be the best option to improve your credit score. These loans lower your credit card utilization ratio immediately, and they ensure that your debt will be paid off at the end of the term. -- Lee Huffman, credit card expert at BaldThoughts.com.

Other Questions You May Have About Balance Transfer Cards

Taking a look at answers to other commonly asked questions about the balance transfer vs. personal loan comparison may further simplify your decision-making process.

Next Steps

Now that you know where the balance transfer credit card vs. personal loan comparison stands, determine which of the two might work better for you. If you choose to get a balance transfer card, make sure you compare your options against parameters such as length of 0% APR periods, balance transfer fees, annual fees and regular APRs.

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About the Author


Rajiv Baniwal has been writing about different financial topics for over 15 years. Meticulous in his research, he makes sure he provides accurate and up-to-date information. His areas of expertise include mortgages, personal loans, credit cards, insurance and international money transfers.


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