A personal loan is an installment loan, while a balance transfer credit card is a financial tool for debt consolidation. Personal loans are ideal for borrowers who have a lot of debt or are unsure how much debt they actually have spread across multiple accounts.
In contrast, balance transfers are best for borrowers who have less debt and can repay their balance before the end of the promotional period. No matter which option you choose, they both can help merge your existing debts into a convenient single monthly payment.
CreditNinja provides online personal loans for unexpected emergencies. If you find yourself struggling financially, a personal loan may provide the relief you need to save money and get back on your feet. Keep reading to learn more about your debt consolidation loan options.
What Is a Personal Loan?
A personal loan is a small to large loan that borrowers repay in monthly payments over the course of several months or years. Personal loans generally range from $200 to $5,000, although some lenders offer even higher loan amounts. Interest rates are typically lower than credit cards, creating potential interest savings for borrowers who consolidate debt.
A personal loan can be a better debt consolidation option for borrowers who have less than perfect credit and prefer a longer repayment plan. CreditNinja offers installment loans with same day approval decisions.* You can share your desired loan amount and repayment duration with us and we’ll work to find you the best offer based on your unique financial needs. Best of all, we do not require a minimum credit score!
Who Should Use a Personal Loan?
Personal loans are ideal for borrowers that have multiple debts, larger expenses, or a need for structured repayments. Most personal loans come with a fixed interest rate, which makes your monthly payments predictable. Your loan agreement will provide transparent and flexible loan terms. You will know exactly how much your monthly payments are and when you can expect to pay off your total loan balance.
Personal loans are versatile, which makes them work for almost any financial situation. You can use the lump sum payment to manage an existing loan or use the money to pay unexpected expenses. Many lenders offer exclusive personal loan offers to good credit borrowers, but you may still get a good rate with a less than perfect credit score.
What Is a Balance Transfer?
A balance transfer card is a debt consolidation tool for borrowers that have high interest debt and good to excellent credit. Balance transfers work by allowing borrowers to consolidate credit card debt or loans with a balance transfer card to simplify debt repayment and save money on interest.
It’s important to consider the promotional APR periods and the credit requirements associated with these offers. Most balance transfer options offer a reduced or even 0% APR for a limited time. The promotional repayment period can last a few weeks or several months, depending on the lender. This benefit allows borrowers to pay zero interest while they repay their outstanding balance.
Who Should Use a Balance Transfer Card?
A balance transfer card is better suited for borrowers that have a good or excellent credit score, and who are capable of financial management. While it’s possible to qualify with bad credit, it can be very challenging and you may need to apply with an eligible cosigner.
With balance transfers, it’s critical that you create and follow a short-term repayment plan to pay off debt before the introductory period ends. If you cannot foresee yourself paying off your transferred debt by the end of the introductory rate period, then applying for a balance transfer credit card may not be worth it.
What To Consider When Deciding Between a Balance Transfer Card or Personal Loan
If you’re deciding between a personal loan and a balance transfer card, below is a helpful breakdown of the pros and cons of each.
Pros of Personal Loans
- Fixed Repayment Schedule — Personal loans provide a clear repayment schedule and defined repayment term with a start and end date. If the personal loan has fixed rates, then monthly payments will not fluctuate.
- Predictability — Fixed interest rates and monthly payments make budgeting easier since you know exactly how much you must pay monthly.
- Lump Sum — Borrowers receive the entire loan amount up front to use for debt consolidation or unexpected expenses.
- Low Interest Rates — Interest rates on personal loans are generally lower than credit cards, which means you may pay less interest overall. At CreditNinja, we offer competitive rates on our online loans.
Cons of Personal Loans
- Origination Fees — Personal loans generally have origination fees, which are one-time loan processing fees. The fee is generally a small percentage of the total loan amount.
- High Rates for Bad Credit — The interest rate on a personal loan can be high for bad credit borrowers. A high rate means you may not save as much money as you would if you had good credit. However, you can still save money by comparing your loan options.
- Fixed Loan Amount — Borrowers cannot receive more money than they initially receive. If you need more, you will have to apply for another personal loan.
- Repayment Inflexibility — Some lenders charge prepayment penalty fees, which prevents early loan repayment. At CreditNinja, we do not charge these types of fees, so you can repay your loan early without penalty.
Pros of Balance Transfers
- Introductory APR — Most balance transfer lenders offer an introductory 0% APR for a few months. This allows you to save money on interest fees while you repay existing credit card debt or other high interest debt.
- Low Fees for Good Credit — Some balance transfer cards offer no annual fees or low to zero balance transfer fees. However, you may need good credit to qualify for these benefits.
- Flexible Credit Limit — Unlike a personal loan, you get a credit limit instead of a lump sum. This allows you to borrow more money later on with a balance transfer if you have enough available credit.
- Repayment Flexibility — Unlike a personal loan, you do not get a repayment schedule with a balance transfer card. This allows you to pay the minimum, which can be as low as $25, depending on your outstanding credit card balance.
Cons of Balance Transfers
- Balance Transfer Fees — You will likely have to pay a balance transfer fee for transferring balances from your existing credit cards to your new one. According to CNBC, this fee is typically 3% to 5% of the transferable amount.¹
- Short Promotional Period — The promotional 0% APR typically only lasts a few months. If you do not repay your credit card balance by the time the promotion expires, you may have to pay high interest fees.
- High Interest Rates — The standard rate on a balance transfer card may be very high once the promotional APR ends. This is especially true if you have bad credit, as APRs can reach or exceed 30%.
- No Financial Plan — A balance transfer card does not provide a repayment plan, so you will have to create a repayment plan on your own. Failing to stick to a financial plan can result in further financial problems.
- Low Transfer Limits — If you have bad credit, you may not be approved for a high balance transfer limit. This limit determines how much money you get to consolidate your debts. A low limit may not be sufficient, which means that you may need to look for alternative options.
What Are the Risks Associated With Each?
Choosing a debt consolidation loan requires careful thought. Here’s a helpful table that explains the risks you may encounter with personal loans and balance transfer credit cards when trying to consolidate debt:
Risk | Personal Loans | Balance Transfer Credit Cards |
High Interest Rates | Fixed rates may still be high depending on creditworthiness | Promotional 0% rates expire; high interest rates may apply |
Origination Fees | May include upfront fees (1-8% of loan amount) | Usually no origination fees, but transfer fees may apply |
Prepayment Fees | Some lenders charge fees for early repayment | Not applicable |
Debt Cycle Risk | May lead to a cycle of re-borrowing if not budgeted properly | May encourage ongoing balance transfers, delaying payoff |
Impact on Credit Score | Hard credit check and high debt to income ratio may lower score short-term | New account and high revolving debt can impact score |
Repayment Inflexibility | Fixed monthly payments regardless of financial situation | Only minimum payment required, which can prolong debt |
Temptation to Overspend | Less risk after disbursement | New credit card account can lead to new purchases, increasing debt |
Common Mistakes to Avoid With Debt Consolidation
While debt consolidation can be a great way to pay off your debt faster, there are potential mistakes you should avoid.
- Using Credit Cards — If you intend to use a balance transfer credit card to transfer balances, avoid continuing to use your credit cards. Continuing to use credit when you are consolidating is counterintuitive and will further damage your finances.
- Not Assessing Your Finances — Consolidating debt without understanding your financial situation can lead to choosing the wrong consolidation option. The wrong consolidation option can further exacerbate your problems and result in even more debt.
- Not Reading Loan Terms — Rushing into a debt consolidation solution without understanding the loan terms can lead to a greater financial burden. Before signing a loan agreement, ensure that the loan terms align with your financial goals.
- Borrowing More Than Needed — Overborrowing can result in unnecessary debt you didn’t need to take on, essentially increasing your overall debt burden.
Frequently Asked Questions?
What is a CreditNinja personal loan?
A CreditNinja personal loan is a quick cash option for life’s unexpected expenses. Our loans range from $300 to $5,000, which makes them ideal for small or large emergencies. If you need financial relief, consider applying through our quick and easy online process. Approved borrowers could get their money the same day they apply.*
Which option has lower fees?
Personal loans generally have lower fees than balance transfer cards. Personal loans may come with origination fees, but balance transfers have balance transfer fees, annual fees, over-limit fees, cash advance fees, and more. While you may save money initially with a balance transfer, you could end up paying a lot more if you don’t pay off your loan balance by the end of your introductory period.
What are the eligibility requirements for each?
To get a personal loan, you must be at least 18 years of age, receive steady income, and an established credit score. At CreditNinja, we do not require a minimum credit score because we consider various factors when making approval decisions. Balance transfer cards generally have the same requirements, but can have stricter credit requirements. If you do not have good or excellent credit, you may not qualify for a balance transfer card.
How long does it take to access funds from both?
It’s relatively quick to get a CreditNinja personal installment loan. Approved borrowers could get funding the same day they are approved.* Balance transfer cards are also quick to provide funding, typically within one business day. This speed is ideal when you need a debt consolidation loan to tackle credit card debt or high interest loans, such as home equity loans or payday loans.
What are the credit score considerations for each option?
The type of credit score you need for personal loans or balance transfer cards depends on the financial institution. But keep in mind that even if you get approval with bad credit, your interest rate may be very high. If you have low credit, consider applying for a CreditNinja personal loan. We offer competitive interest rates and work with all types of credit backgrounds.
Which option is better for short-term vs long-term debt?
Personal loans are better suited for long-term debt because they typically have lower interest rates than balance transfer cards. In contrast, balance transfer cards are better for short-term debt due to 0% introductory APR periods. However, the best choice depends on your repayment preferences and financial background.
Suppose you do not have a lot of debt to consolidate. You may think a balance transfer card is a better option, but if you struggle to manage your finances, the lack of repayment plan could worsen your situation.
How Can CreditNinja Help?
At CreditNinja, we have been helping borrowers tackle all types of unexpected emergencies since 2018. Our online personal loan process is quick and easy, which helps borrowers get the money they need as soon as the same day.* If you are struggling financially and need some relief, consider working with us to consolidate debt.
Our personal loans provide up to $5,000 and have flexible repayment options. If you’re interested in getting started with us, apply online or call 855-NINJA-01. Our customer service team would be more than happy to answer any questions or address concerns.
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