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If your small business wants to reduce its debt then you may be wondering can you pay a bank loan with a credit card. We explain whether it’s possible and if it’s the best way to pay off your bank loan.
Can you pay a bank loan with a credit card?
There are many ways to tackle debt, and small business owners often ask can you pay a bank loan with a credit card? The simple answer is yes.
Using a money transfer credit card could help reduce your monthly bill. Money transfer credit cards allow you to shift cash from your credit card to your bank account.
Once the money is in your account, you can use it to pay a bank loan, clear your overdraft or purchase other goods and services.
Most money transfer credit cards offer zero interest for a certain period of time. You’ll usually be charged a fee of around 3-4% for the transfer.
Should you use a credit card to pay a bank loan?
Before deciding to pay a bank loan with a credit card, it’s important to have a strategy in place that you can stick to.
Ideally you’ll be able to clear the money transfer credit card balance within the interest-free period. At the very least you’ll need to be able to make the minimum monthly repayments. Failing to do will result in you being charged late fees as well as your interest-free period being cancelled. Your credit score may also be affected as a result.
If you’re unable to clear your credit card balance before the interest-free period ends then it may be possible to get a 0% balance transfer card. This will enable you to spread your repayments over another interest-free period.
Without a 0% balance transfer credit card, you’ll have to pay the remaining balance at a much higher rate of interest. So it’s important to have a repayment plan ready in case you are unable to get one. Failing to keep up with the new payments could put your small business at risk.
Other ways to pay a bank loan
If you don’t think you can pay a bank loan with a credit card, there are alternatives to help your small business make repayments.
Switching to a different bank loan with a lower interest rate or shorter loan term could save you money in the long run. It’s important to make sure that you can keep up with the new repayments before making the switch.
Using savings could also help pay a bank loan. The general rule of thumb is that the cost of debt is higher than the benefit of saving. So using your savings, where possible, could help you pay off your business loan in part or in full.
It may be possible to make extra payments on your bank loan, which will reduce the amount of interest you pay. You’ll need to contact your lender before doing so as this may incur extra charges.
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