Most credit card users are familiar with consolidating credit card debt by transferring balances to a new card with an introductory interest rate, often zero interest, for six months to two years or more. This is ideal if your debt is all on credit cards. But what if you need breathing space on a personal loan you’re struggling to repay?
Good news: some credit cards allow you to transfer your personal loan balance to a new card.
The balance transfer introductory rate is usually better than the personal loan rate
While personal loan rates are generally lower than regular credit card interest rates, transferring a personal loan to a credit card with an introductory low or zero interest rate on balance transfers can be advantageous. Avoid transferring a personal loan balance without an introductory offer, as you could end up paying a higher interest rate than your current loan.
What’s in it for the card issuer?
Card issuers offer interest-free loans to:
- Secure new customers who may eventually use the credit card for purchases, earning merchant fees for the bank.
- Encourage new customers to use the credit card for purchases while having an outstanding balance, thus incurring interest charges.
How to request a balance transfer from a personal loan to a credit card
When you apply for a balance transfer credit card, there will be a section asking for details of the debt you want to transfer. Here, you'll need to provide the following information about your personal loan debt:
- The name on the account
- The type of account (i.e. personal loan)
- The account number
- The amount of debt you want to transfer
- The name of the issuing organisation
- The BPAY biller code and reference number (if available)
If your application is approved, you should receive your new credit card in about 10 working days. Depending on the issuer, you may need to activate the card before the balance transfer process can begin. This could take another 10 working days to complete. Once the transfer is done, you can close your old account and start paying off the debt on your new credit card.
Avoid using your new card for purchases while the balance is unpaid
To maximise benefits, avoid using your new card for purchases until the transferred loan is repaid. This prevents forfeiting any interest-free days normally allowed on purchases, as every purchase will incur interest from the transaction date.
Avoid using your new card for cash advances while the balance is unpaid
Do not use your new card for cash advances, which always attract interest from the transaction date. Repayments will be applied first to the balance incurring the highest interest charges, prolonging the time to repay your loan.
Use the interest holiday to pay off the loan faster
Use the zero-interest period to repay the loan in full. The absence of interest charges allows you to allocate more cash to the principal. Be aware that the revert interest rate after the introductory period can be very high, often as high as 21% p.a.
Debt consolidation
Consider transferring any existing credit card balances along with your personal loan to consolidate all your debts into one manageable, temporarily interest-free account.
Personal loans from the new card issuer’s bank cannot be transferred
You cannot transfer personal loans or credit card balances owed to the bank issuing your new card. For example, you can’t transfer a Citi personal loan to a Citi credit card.
Balance transfer may incur an upfront fee
Consider any upfront balance transfer fees, which can range from 1% to 3% of the amount transferred. This fee will be indicated in the card offer details.
New card application is subject to a review process
Your new card application and balance transfer request will be reviewed by the card issuer. Ensure your personal loan repayments are up to date and that you have a reasonable credit rating.
