Can you pay off a loan with a credit card?

Why can't you usually pay a loan with a credit card?

Most loan companies don't accept credit cards as a payment method. There are a few good reasons for this:

• It creates a chain of debt: When you use a credit card to pay off a loan, you're essentially moving debt from one place to another. You'd still owe the money – just to a different company.
• Payment processing costs money: Credit card companies charge fees to businesses that accept card payments. Loan companies would therefore need to pay these fees.
• It can go against lending rules: Financial regulations are designed to prevent people from getting into unhealthy debt cycles. Letting people use one form of credit to pay another could make your finance problems worse.

When you set up loan repayments, you'll typically need to use a Direct Debit from your bank account. This means the money comes straight from your current account each month.

The exception: Money transfer credit cards

While you can't swipe your regular credit card to pay a loan, there is one way to use credit card borrowing to clear a loan – a money transfer credit card.

This special type of credit card lets you transfer money from your credit card directly into your bank account. Once the money is in your bank account, you can use it to pay off your loan (or for any other purpose).

How does a money transfer credit card work?

Instead of spending on your credit card in shops, you move the credit as money into your bank account.

Here's the process:

1. You apply for a money transfer credit card
2. Once approved, you request a money transfer to your bank account
3. The money arrives in your account (usually within a few days)
4. You use this money to pay off your loan
5. You then owe the money to your credit card company instead.

Some money transfer cards offer a special introductory period where you pay 0% interest. This means you won't pay any extra charges on the amount you've transferred for a set time – often between 6 and 24 months. After this period ends, you'll pay the card's standard interest rate on any remaining balance.

Things to consider before using this method

While money transfer cards can be helpful, they're not right for everyone. Here are some important points to think about:

• You'll likely pay a fee: Most money transfer cards charge a one-off transfer fee when you move money to your bank account. This is usually between 3% and 4% of the amount you transfer. On a £3,000 transfer, that's £90 to £120.
• You need good credit: Money transfer cards typically require a good credit score. If your credit history has problems, you might not be approved.
• The interest-free period doesn't last forever: You need to repay the balance before the 0% period ends. If you don't, you'll start paying interest, which could be quite high.
• You still owe the money: This isn't free money. You're simply moving your debt from one place to another. Make sure you can afford the repayments.
• It might not solve the problem: If you're struggling with debt, moving it around might only provide temporary relief. You might benefit from speaking to a debt charity like StepChange or Citizens Advice for free, independent guidance.

Is this right for you?

A money transfer credit card could be useful if:

• You can get a card with a lower interest rate than your current loan
• You want to consolidate multiple debts into one monthly payment
• You have a plan to repay the balance during the interest-free period
• You have a good credit score

However, if you're already struggling with debt or worried about making repayments, this approach might not help. Moving debt around doesn't make it disappear.

The bottom line

You can't pay off a loan with a regular credit card – loan companies don't accept this payment method. However, a money transfer credit card offers a workaround by letting you move money into your bank account, which you can then use to pay your loan.

Before you go down this route, make sure you understand the fees involved and have a solid plan to repay the balance. And remember, if you're feeling overwhelmed by debt, free help is available from debt advice charities.