Balance transfer or personal loan?
The short answer
A 0% balance transfer is usually cheapest if you can clear most of the balance before the 0% ends. A personal loan’s fixed rate and end date can work out cheaper if you can’t. Moving £3,000 from a card at 24.9% APR to 12 months at 0% with a 3% fee, and paying £150 a month, costs £220 in fee and interest. A 2-year loan at 14.9% APR costs £144 a month and £456 of interest. Staying put costs £793.
How each one works
- A balance transfer moves the balance to a new card that charges 0% for a set time, usually for a fee of a few percent. Whatever’s left when the 0% ends is charged the card’s standard rate.
- A personal loan pays the card off, and you repay the loan in fixed monthly amounts over a set time, at a fixed rate. Most have no arrangement fee, but small loans often cost more than the rates advertised for larger ones.
The loan sets its own monthly payment. A transfer leaves the payment up to you, above its minimum, which is both its strength and its risk.
Worked example
£3,000 on a card at 24.9% APR. The transfer is 12 months at 0% with a 3% fee, then 24.9%; the loan is at 14.9% APR.
| Way | Each month | Clear in | Fees and interest |
|---|---|---|---|
| Staying put | £150 | 2 years 2 months | £793 |
| Balance transfer | £150 | 1 year 10 months | £220 |
| Loan over 2 years | £144.00 | 2 years | £456 |
| Loan over 3 years | £102.49 | 3 years | £690 |
At £150 a month, £1,290 is left when the 0% ends, and clearing it at 24.9% costs £130. That’s still far less than the loan.
When the loan wins
Pay £100 a month on a deal with only 6 months at 0%, and £2,490 is left when the 0% ends. Clearing that at 24.9% takes until month 40 and costs £983 in all. A 3-year loan at 14.9% costs £102.49 a month, about the same, and £690: £293 less. The shorter the 0% and the smaller the payment, the more the loan’s steady rate is worth.
The loan also wins if you know you won’t keep to a plan: its payment and end date are fixed, and there’s no rate waiting to jump.
Before you apply
- Check your eligibility first. Many lenders offer a check that uses a soft search, which no one else sees. A full application leaves a hard search on your credit file.
- Look at the rate you’re offered, not the advertised one, and at the transfer’s limit: it may not take the whole balance.
- Don’t secure it on your home. MoneyHelper warns that missing payments on a loan secured on your home could cost you the home.
- Stop using the old card. Clearing it with a transfer or a loan only helps if the balance doesn’t build up again.
Getting help
If you can’t get either, or the payments would be hard to keep up with, talk to your card provider and a free debt advice service: MoneyHelper, StepChange, National Debtline and Citizens Advice are all free and confidential.
Work it out with your own figures
Compare your own transfer deal and loan with staying put.
Open the Balance Transfer vs Loan CalculatorNext step: see a balance transfer month by month.