How to Pay Student Loans with a Credit Card? Here are the Pros and Cons

pay student loans with credit card

A private education loan beneficiary can pay student loans with a credit card provided the lender allows her/them/him to do so. Paying off private student loans with this method offers repayment flexibility to borrowers. However, beneficiaries of government loans cannot avail of this facility. Furthermore, you can only use your credit card to repay a private loan if your card allows for cash advances. This feature of credit cards increases the credit card balance, which should be paid in time to maintain a good credit rating. Thus, to learn about paying off education loans using credit cards, we must identify the pros and cons of using credit cards for paying off education loans.

Also Read: How to Refinance Student Loans and When Should You Consider It?

Benefits of Paying Student Loans with a Credit Card

Those opting to pay off education loans using credit cards can avail of some benefits. These advantages include loan repayment flexibility and a reduction in interest payments. 

Repayment Flexibility

After the grace period for your student loans ends, you are required to repay them regularly. If you decide to transfer your student loans to a credit card, you could be offered a minimum balance that suits your current requirements, potentially with a more advantageous Advantageous Percentage Rate (APR). This is one of the key advantages for an individual who decides to pay student loans with a credit card. 

Reduction in Interest Payments

When you move your student loan balance to a credit card, you might benefit from a reduced interest rate. Some balance transfer cards provide introductory APRs close to zero per cent, but these favourable rates usually apply only during the initial 12 or 18 months as a cardholder and might involve fees similar to regular credit cards. After the introductory period, your interest rate will increase and apply to any remaining credit card balance you have.

Also, Read: Study Abroad Loan: Ease Your Study Abroad Financial Burden With Experts Tips From Fly Finance

Using a credit card to pay off student loans comes with several significant cons and potential drawbacks. Owing to these disadvantages, most beneficiaries opt out of this repayment option.

High-interest rates

Credit cards often have much higher interest rates compared to student loans. This means you could end up paying much more in interest over time, increasing the overall cost of repaying your debt.

Debt Accumulation and Additional Fees

Credit card debt can quickly accumulate, especially if you have a large student loan balance. This could lead to a cycle of increasing debt and financial stress. Additionally, credit card companies may charge transaction fees or cash advance fees when using them to pay off student loans, adding to the overall cost of repayment.

Negative Credit Score

Another disadvantage for individuals who pay student loans with credit card is high credit card balances. Increased balance amounts can negatively impact your credit score, potentially lowering your creditworthiness and affecting your ability to secure loans or favourable interest rates in the future.

Also Read: What Happens When You Are Defaulting On Student Loan?

Adverse Impact on Credit Utilisation Ratio

Using a significant portion of your available credit can negatively affect your credit utilisation ratio, another factor that can impact your credit score.

Lack of borrower benefits

Student loans may come with borrower benefits, such as deferment options, income-driven repayment plans, or potential loan forgiveness programs. Paying off student loans with credit cards could make you ineligible for these benefits.

Also Read: Student Loan Forgiveness Application 2023

Financial risk

If you are unable to manage credit card payments effectively, it could lead to missed payments, late fees, and possible collection actions, exacerbating your financial situation.

Student Loan Interest Rate v/s Credit Card Interest Rates

It is important to understand that interest rates on education loans are generally lower than that on credit cards, before deciding to pay student loans with credit card. However, interest rates on balance transfer cards are usually lower than that on credit cards. Students are therefore advised to explore loan repayment options by consulting their lenders or Fly Finance experts to avail of the best education loans to study abroad

FAQs

Q1. Can I pay student loans with credit card?

Ans. Yes, beneficiaries of private education loans can repay their loans using a credit card. Students must consult with their lenders to confirm the same and reach out to their credit card providers to explore essential details. 

Q2. What are the pros and cons of paying off education loans with credit cards?

Ans. Some of the key advantages include repayment flexibility and low-interest payment with balance transfer cards. Whereas, the disadvantages are high-interest rates, additional fees, debt accumulation, negative CIBIL scores, and other financial risks.

Q3. How to use a credit card for a student loan?

Ans. Credit card payments to student loan servicers or lenders are often not accepted. However, it is feasible to pay student loans via a third-party payment service or a line of credit, such as by transferring them to a card with a 0% APR period or taking out a cash advance.

Stay connected with Fly Finance to avail yourself of study abroad loans and international money transfer services. Connect with our experts at 1800 572 126 to opt for these services. 

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