How a Credit Card Loan’s Fast and Easy Cash Can Cost You

A credit card loan is cheaper than a cash advance, but it won't benefit your credit score and may be more expensive than alternatives.

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Credit card companies want to turn your unused credit line into cash you can borrow for things like home improvements or unexpected expenses. But these credit card loans may not be the best choice for your wallet or your credit score.

Two of the largest credit card issuers, Citi and Chase, offer the Citi Flex Loan and My Chase Loan to eligible cardholders. Though these loans are fast, convenient and cheaper than cash advances, personal finance experts say the loans are still costly and can lower your credit scores, making it more difficult to obtain credit with low interest rates in the future.

Before you accept this seemingly simple way to get cash, consider the risks and compare your alternatives.

How a credit card loan works

You may see an offer for a credit card loan on your online account or the bank’s mobile app. Though you will need to select your desired loan amount and review your options, you don’t have to formally apply or undergo a credit check to receive your loan. This is because you're not applying for a new form of credit but utilizing the limit already available on your credit card.

“It’s very tempting because it’s so fast and easy, with no application,” says David Rae, a certified financial planner based in Los Angeles. “If you’re already in debt, it can cause that debt to snowball and become a big problem.”

The amount you can borrow depends on your available credit, monthly spending habits and creditworthiness, among other factors. The lowest amount you can borrow is $500.

Once you choose a loan amount and repayment term, the issuer transfers the cash to your bank account within a couple of days. Citi will alternatively mail a check.

The loans have payback terms of six months to five years, and monthly repayments are added to your card’s minimum payment due, so you only have one payment to keep track of. Citi and Chase say they report payments to the credit bureaus as credit card payments, not as separate loan payments.

Having different types of credit on your reports can positively affect your scores. In this case, “there’s no added benefit to your credit score, beyond just having a credit card and making a payment,” Rae says.

You can continue using your credit card, but you’ll want to track your balance and stay under the credit limit to avoid costly fees. You also won’t get cash back, miles or points with the Citi or Chase loan.

The costs and risks

Rae advises the loans should only be considered for emergency expenses if you don’t have savings, rather than for discretionary purchases.

“If you’re trying to book a vacation or shopping for clothes, I wouldn’t recommend this product,” he says.

Credit card loans may cost less than cash advances, but they aren’t cheap.

For example, a three-year, $5,000 Citi Flex Loan at 9.99% APR would have monthly payments of $161 and total interest of about $800.

Taking out a credit card loan also increases your credit utilization rate — how much of your credit limit is used. Most financial experts recommend keeping your total utilization below 30%, and the lower the better for your score.

This loan can push you above that threshold and lower your credit score, says Bruce McClary, spokesperson for the National Foundation for Credit Counseling.

Compare alternatives

Whenever you borrow, compare interest rates on multiple loan options and consider features that build your credit or offer flexible payment schedules.

  • Personal loans may offer higher loan amounts or lower rates, especially if you have excellent credit. They also show up as separate accounts on your credit reports, helping to diversify your accounts and indicate you can handle different types of credit, ultimately lifting your scores.

  • If you qualify, a 0% APR credit card is an interest-free loan, as long as you pay the balance before the introductory offer period ends. Also, you may earn cash back or travel rewards with this credit card.

  • If you want a small loan, you may have other options depending on where you bank. Bank of America’s Balance Assist allows customers to borrow up to $500 for a $5 flat fee. U.S. Bank's Simple Loan offers loans to customers in $100 increments.

Frequently asked questions

Banks like Citi and Chase allow eligible cardholders to borrow cash based on their card’s existing credit line.

A credit card loan is money you borrow against your credit card limit and then pay back monthly over a set repayment term.

A credit card loan works like a personal loan from a bank, with money deposited directly into your bank account and repaid in monthly installments.

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