Pros, Cons, and What to Consider Before Transferring a Car Loan to a Credit Card

Are you looking to save money on your car loan? Transferring your car loan to your credit card might sound like a good idea, but is it really worth it? While there are certainly some advantages to doing so, there are also some potential drawbacks that you should consider. In this blog post, we’ll take a look at the pros and cons of transferring your car loan to your credit card, as well as some important factors to consider before making a decision. 

Is it really a good idea to pay off your car or truck loan with a credit card balance transfer offer? 

While transferring a car loan to a credit card may allow for lower interest rates and lower monthly payments, it can also come with high transfer fees, potential risks to your credit score, and increased debt. Be sure to weigh the pros and cons and alternatives. 

So, if you’re tired of feeling like you’re driving a clown car because your car payments are so high, have no fear! Transferring your car loan to your credit card might just be the ticket to saving some serious cash. But before you start packing your car full of circus animals, let’s take a closer look at the pros and cons of this financial acrobatics feat. 

The Pros of Transferring a Car Loan to a Credit Card 

If you’re thinking about transferring your car loan to your credit card, there are some potential benefits to consider. Here are a few of the advantages that might make it worth your while:  

  • Converting a Secured Car Loan to an Unsecured Revolving Debt: One of the main benefits of transferring your car loan to your credit card is that you can convert a secured loan (i.e., one that’s tied to an asset, like your car) to an unsecured revolving debt. This means that you won’t have to worry about losing your car to the repo man or woman if you fall behind on your payments. While it’s important to remember that you’ll be on the hook for your credit card debt if you can’t pay it off and may still end up in collections, it can be a relief to know that your car isn’t at risk. 
  • Eliminating Your Car Insurance Comprehensive and Collision Coverage: One major benefit of paying off your car loan with a credit card balance transfer is that can then eliminate your car’s comprehensive and collision insurance coverage. When you take out a car loan, the lender typically requires you to carry full coverage insurance on the vehicle until the loan is paid off. However, if you pay off the car loan with a credit card balance transfer, you are longer required to carry this expensive insurance coverage. This can be a significant cost saving, particularly if you have an older car that’s fully paid off and you’re considering dropping the comprehensive and collision insurance coverage anyway. 
  • Potential for Lower Interest Rates: Another advantage of transferring your car loan to your credit card is that you might be able to get a lower interest rate. Many credit cards offer promotional 0% APR balance transfer offers, which can allow you to pay off your car loan interest-free for a limited time. Even if you don’t qualify for a 0% APR offer, you might still be able to get a lower interest rate on your credit card than you’re currently paying on your car loan. 
  • Lower Monthly Payments: In addition to potentially getting a lower interest rate, transferring your car loan to your credit card can also result in lower monthly payments. This is because credit cards typically have lower minimum payments than car loans. While it’s important to remember that you’ll need to pay off your credit card balance eventually, lower monthly payments can provide some short-term relief if you’re struggling to make ends meet. 

These advantages can make it seem like a no-brainer to transfer your car loan to your credit card. However, it’s important to carefully consider all of the potential drawbacks before making a decision. 

The Cons of Transferring a Car Loan to a Credit Card 

While there are certainly some advantages to transferring your car loan to your credit card, there are also some potential disadvantages to consider as well. Here are a few of the cons that you should be aware of: 

  • High Transfer Fees: One of the biggest drawbacks of transferring your car loan to your credit card is that there are often high transfer fees involved. Most credit card balance transfer offers come with a transfer fee of 3% to 5% of the amount being transferred. That means you could end up paying hundreds of dollars in fees. This can eat into any potential savings you might have otherwise enjoyed. 
  • Potential Problems with Limited Time Promotional Offers: While promotional 0% APR balance transfer offers can be a great way to save money on interest, they come with their own set of potential problems. For one thing, these offers are often only available for a limited time, typically 6-18 months, and shorter terms are normal for borrowers with lower credit scores. If you haven’t paid off your balance by the time the promotional period ends, you could end up paying higher interest rates than you were paying on your car loan. 
  • Risk of Increasing Debt: Another potential drawback of transferring your car loan to your credit card is that it can be easy to fall into the trap of increasing your debt. If you’re not careful, you could end up charging more to your credit card than you can afford to pay off. This can quickly spiral into a cycle of debt that can be hard to escape. 
  • Impact on Your Credit Score: Transferring your car loan to your credit card can also have an impact on your credit score. While it’s true that paying off your car loan could help improve your credit score, applying for a new credit card can temporarily lower it. Additionally, if you’re unable to make your payments on time or if you max out your credit card, your credit score could suffer even more. 
  • Longer Repayment Period and More Interest Paid: Finally, while transferring your car loan to your credit card can result in lower monthly payments, it’s important to remember that this will also mean a longer repayment period and more interest paid over the life of the loan. This option might be worth it if you’re struggling to make ends meet, it’s important to weigh the costs and benefits carefully before making a decision. 

While there are certainly some potential benefits to transferring your car loan to your credit card as noted previously, it’s important to carefully consider all of the potential drawbacks before making a decision. Clearly, it is not as black-and-white a decision as some might think. 

Other Factors to Consider Before Transferring a Car Loan to a Credit Card 

Before making your decision to transfer your car loan to your credit card or not, keep in mind a few additional factors that might sway you one way or another. 

  • Effect on Payment History: When you transfer your car loan to your credit card, it’s important to remember that this will show up on your credit report. This means that any missed or late payments will be reflected in your payment history, which could negatively impact your credit score. It’s important to make sure that you’re able to make your payments on time and in full each month. 
  • Ease of Monthly Payments: Consolidating your debt by transferring your car loan to your credit card can make it easier to keep track of your monthly payments. Instead of having to make multiple payments each month to different lenders, you’ll only have one payment to make. However, if you’re not able to make your payment, you could end up in even more financial trouble than you were before. 
  • Potential Difficulty in Making Monthly Payments: On the other hand, consolidating your debt by transferring your car loan to your credit card can also make it more difficult to make your monthly payments. If you’re not used to managing a credit card balance, it can be easy to overspend and end up with more debt than you can handle. Additionally, if you have a high balance on your credit card, it can be difficult to make the minimum monthly payments, which can result in additional fees and interest charges. 
  • Impact on Credit Utilization: Finally, when you transfer your car loan to your credit card, it can also impact your credit utilization ratio. This ratio measures the amount of credit you’re using compared to the amount of credit you have available. If you have a high balance on your credit card, this can increase your credit utilization ratio and negatively impact your credit score. You will want to work hard to make sure that you’re able to manage your credit card balance responsibly and keep your credit utilization ratio low. 

Alternatives to Transferring a Car Loan to a Credit Card 

If you’re looking for alternatives to transferring your car loan to your credit card, you have several options to consider, including the following four: 

  • Credit Card Rewards: You might start to salivate at the idea of transferring your car loan to your credit card to earn rewards or travel points. Many credit cards offer such programs that allow you to earn cash back, points, or miles for every dollar you spend. However, as noted in an article by RateGenius that quoted me on the subject, rewards credit cards do not offer points or other rewards for transferring balances from other accounts to their cars. 
  • Refinancing Your Car Loan: Refinancing your car loan involves taking out a new loan to pay off your existing car loan. This can be a good option if you’re looking to lower your monthly payments or secure a lower interest rate. However, keep in mind that refinancing may extend the life of your loan, which means you’ll pay more in interest over time. 
  • Applying for a Personal Loan: Another option is to apply for a personal loan to pay off your car loan. Some personal loans have lower interest rates than credit cards, which can save you money in the long run, but most carry interest rates that may be double your car loan rate. Also, many personal loans may come with origination fees, which can add to your overall cost. And if you use a finance company (like those you find online or in a strip mall), you might expect to see interest rates as much as five to ten times your car loan APR. 
  • Seeking a Debt Management Program: If you’re struggling with debt and looking for a way to manage your payments, you may want to consider seeking help from a credit counseling agency. A debt management program can help you consolidate your debts and create a repayment plan that works for you. While these programs come with a one-time enrollment fee and monthly administrative fees, they are generally very reasonable and capped by state laws and regulations. 

Ultimately, the right option for you will depend on your individual financial situation. Be sure to carefully consider the pros and cons of each alternative before making a decision, and don’t be afraid to seek guidance from a credit counselor if you need help weighing your options. 

Related Questions 

Is it a good idea to pay off a car loan with a home equity loan? 

It may not be a good idea to pay off a car loan with a home equity loan, as it puts your home at risk if you can’t make the payments. Consider other options, such as credit counseling, refinancing the car loan, or seeking a personal loan before using home equity to pay off a car loan. 

Will it hurt my credit rating if I pay off my car loan early? 

Paying off your car loan early may have a temporary negative impact on your credit score because the average age of your accounts will decrease, and your mix of credit may be affected. However, paying off a loan early also shows responsible financial behavior that might help your credit score.

About the Author

Client Credit Report Authorization

You hereby authorize and instruct Debt Reduction Services, Inc. (DRS, dba Money Fit by DRS) and/or its assigned agents to:
  • Obtain and review your credit report, and
  • Request verifications of your income and rental history, and any other information deemed necessary for improving your housing situation (for example, verifying your annual property tax obligations and homeowner’s insurance fees)
Your credit report will be obtained from a credit reporting agency chosen by DRS. You understand and agree that DRS intends to use the credit report evaluate your financial readiness to purchase or rent a home and/or to engage in post-purchase counseling activities and not to grant credit. You understand you may ask any questions pertaining to your credit report. However, while DRS will review the information with you, the company is not able to furnish you with a copy of your credit profile. You hereby authorize DRS to share your information from your credit report and any information that you provided (including any computations and assessments produced) with the entities listed below to help DRS determine your viable financial options.
  • Banks
  • Counseling Agencies
  • Debt Collectors
  • Landlords
  • Lenders
  • Mortgage Servicers
  • Property Management Companies
  • Public Housing Authorities
  • Social Service Agencies
Entities such as mortgage lenders and/or counseling agencies may contact your DRS counselor to evaluate the options for which you may be eligible. In connection with such evaluation, you authorize the credit reporting and/or financial agencies to release information and cooperate with your DRS counselor. No information will be discussed about you with entities not directly involved in your efforts to improve your housing situation. You hereby authorize the release of your information to program monitoring organizations of DRS, including but not limited to, Federal, State, and nonprofit partners for program review, monitoring, auditing, research, and/or oversight purposes. In addition, you authorize DRS to have your credit report pulled two additional times to conduct program evaluations. You also agree to keep DRS informed of any changes in address, telephone number, job status, marital status, or other conditions which may affect your eligibility for a program you have applied for or a counseling service that you are seeking. Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.

Client Privacy, Data Security, and Client Rights Policy

NOTE: This sheet is to inform new or returning clients about our services, records, fees, and limitations that may affect you as a consumer of our services. This form also discloses how we might release your information to other agencies and/or regulators. If you do not understand a statement, please ask a Debt Reduction Services (DRS) counselor for assistance.

Debt Reduction Services, Inc. (DRS) has put into place policies and procedures to protect the security and confidentiality of your nonpublic personal information. This notice explains our online information practices and how we use and maintain your information to conduct our financial education and credit counseling sessions and to fulfill information and question requests. This privacy policy complies with federal laws and regulations.

To provide our financial education and credit counseling services, we collect nonpublic personal information about you as follows: 1) Information we receive from you, 2) Information about your transactions with us or others, and 3) Information we receive from your creditors or a consumer reporting agency. We do not share this information with outside parties.

We use non-identifying and aggregate information to better design our website and services, but we do not disclose anything that could be used to identify you as an individual.

You hereby authorize DRS, when necessary, to share your nonpublic personal, financial, credit, and any information that you provided (including any computations and assessments produced) with the following entities in order to help DRS provide you with appropriate counseling or guide you to appropriate services: third parties such as government agencies, your lender(s), your creditor(s), and nonprofit housing-related and other financial agencies as permitted by law, including the U.S. Department of Housing and Urban Development.

To prevent unauthorized access, maintain data accuracy, and ensure the correct use of information, we have put in place appropriate physical, electronic, and managerial procedures to safeguard and secure the information we collect online. We limit access to your nonpublic personal information to our employees, contractors and agents who need such access to provide products or services to you or for other legitimate business purposes.

Debt Reduction Services, Inc. complies with the privacy requirements set forth in the HUD housing counseling agency handbook 7610.1 (05/2010), including the sections 2-2 Mc, 3-1 H(2), 3-3, 5-3 F, and Attachment A.5. At all times, we will comply with all additional laws and regulations to which we are subject regarding the collection, use, and disclosure of individually identifiable information.

  1. Services: DRS provides the following housing-related services: counseling that includes Homeless Assistance, Rental Topics, Pre-purchase/Homebuying, and Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase); Education courses that include Financial literacy (including home affordability, budgeting, and understanding use of credit), Predatory lending, loan scam or other fraud prevention, Fair housing, Rental topics, Pre-purchase homebuyer education, Non-delinquency post-purchase workshop (including home maintenance and/or financial management for homeowners), and other workshops not listed above.

Please refer to DebtReductionServices.org for details of our services.

  1. Limits: Our services are limited to our normal weekday business hours. We do not provide individual counseling or education services after hours or on weekends, although our education courses are available 24/7.
  2. Fees: We do not charge fees for our financial management counseling and education. However, if you use them, you may have to pay for our Debt Management Program, Student Loan Counseling, Bankruptcy Certificate Services or certain financial education courses (homebuyer education, rental topics, fair housing, predatory lending, and post-purchase-non-delinquency including home maintenance and/or financial management for homeowners).
  3. Records: We maintain records of the services you receive, including notes about your progress or other relevant information to your work with us. You have the right to access and view your records by making a request to your counselor.
  4. Confidentiality: We respect your privacy and offer our services in confidence with the understanding that we may share such information with auditors and government regulators. Certain laws or situations may also lead to disclosing confidential issues, such as those involving potential child abuse or neglect, threats to harm self or others, or court subpoenas.
  5. Refusal of Services: You have the right to refuse services without any penalty or loss.
  6. Disclosure of Policies and Practices: You will be provided our agency disclosure statement.
  7. Sharing of Information: Sometimes we will need to contact other agencies or we may need to share your information, including your records, with other agencies or with regulators. We will do this only if you sign this form that gives us permission except for limited reasons; please see # 5 above for examples of such situations.
  8. Other: You have the right to be treated with respect by our staff, and we expect the same from you in return. We encourage you to always ask questions if something is not clear. We also encouraged you to express your thoughts and advocate throughout our services.

You acknowledge that this authorization will remain in effect for the duration of time that DRS serves as your housing counselor or financial education provider. You also acknowledge that should you wish to terminate this authorization, you will notify DRS in writing.

Disclosure  Statement

NOTE: If you have an impairment, disability, language barrier, or otherwise require an alternative means of completing this form or accessing information about our counseling services, please communicate with your DRS representative about arranging alternative accommodations.

Program Disclosure Form

Disclosure to Client for HUD Housing Counseling Services

Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
  • Home Equity Conversation Mortgage (HECM) Counseling (RMC): Via telephone and virtual platforms, we offer the required HECM counseling nationwide in addition to in-person counseling in Boise, Idaho. We also offer in-home counseling options in thirty counties across southern Idaho for an additional fee to cover our travel and additional staff time costs.
  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
  • A Debt Management Program (DMP) for consumers struggling to pay their credit cards, collections, medical debts, personal loans, old utility bills, and past-due cell phone accounts;
  • The Budget Briefing and Debtor Education Certificates that are required during the Bankruptcy filing process;
  • A Student Loan Repayment Plan Counseling and application service.

Relationships with Industry Partners

Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

No Client Obligation

The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
Finally, you understand that you may revoke consent to these disclosures by notifying DRS in writing.

Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

RentalFair HousingPredatory Lending / HOEPAPost-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. creditbudgetinghomeless preventiondebt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

RentalFair HousingPredatory Lending / HOEPAPost-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. creditbudgetinghomeless preventiondebt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).