What's a Credit Card Loan? Should You Use One?

These loans can save you money, but don't ignore the downsides.

Credit cards can be great for charging purchases, but what if there's something you need to pay for that you can't charge on your card? Traditionally, if you didn't have the money in your bank account and wanted to access it using a credit card, you would need to take a cash advance.

The problem, though, is that cash advances come with ATM fees, higher interest rates, and additional upfront fees from your credit card company. This makes them a really expensive way to borrow.

The good news, though, is some card companies are now offering alternatives. These card issuers will actually allow you to take a credit card loan, or a loan against the value of your credit line. The big questions, though, are how these loans work and whether they are right for you.

What is a credit card loan?

Credit card loans are a new financial offering from some credit card issuers. For example, Chase offers My Chase Loan, which allows you to borrow against your card's credit line. And Citi offers Citi Flex Loan, which works similarly. 

With these loans, there's a minimum and maximum amount you are eligible to borrow. With Chase, for example, the minimum amount is $500 and the maximum is based on your creditworthiness and spending patterns. 

You will get a fixed APR that's typically lower than the standard purchase APR on your card. You'll also have a set payoff schedule determined when you borrow using a credit card loan. For instance, Citi's Flex Loan examples show that if you borrow $500 for 12 months, your monthly payments would be around $44, assuming you were offered a 9.99% APR when you borrowed. 

If you have enough available credit after borrowing against it, you can also keep using your credit card.

Is a credit card loan right for you?

There are some big benefits to getting a credit card loan, including the following:

• The loan is typically cheaper than a cash advance.
• You won't have to undergo a separate loan application or credit check to access the loan.
• Your interest rate and payoff schedule will be fixed.

But there are also a few downsides:

• It can take a little more time to get your money than if you just charged things on a credit card or took a cash advance. Citi, for example, will either send a check by mail or deposit the funds after a business day. 
• The APR may not be as low as with other personal loan options. If you shopped around among personal loan lenders, you may be able to borrow more affordably.
• Your ability to borrow is limited based on your credit line. You may not be able to borrow as much as with other types of personal loans.
• Not all card issuers offer these loans. You'd need to make sure yours does. 

Ultimately, if you think a credit card loan might work for you and this option is available through your card issuer, it doesn't hurt to check out the terms and see how it compares with a personal loan. But, as with all borrowing, don't ever borrow more than you truly need or can afford to pay back.