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I racked up a lot of credit card debt quickly after a major medical operation, and the interest is so high that even putting large amounts of my paycheck towards it monthly hasn't made a dent in the balance.

I have a good credit score, and my own bank (that holds the credit card) pre-approved me for a 10% APR personal loan enough to pay off the credit card balance to zero. I'd rather use my own bank, as its simple to manage the accounts all in one place.

The terms of service however state this:

"Credit cards issued by bankname or its affiliates, are not eligible for debt consolidation, and bankname will not issue payoff checks for these accounts."

Does that mean the loan cannot be used to pay off debt by the same bank? What stops loan borrowers from simply transferring the cash deposited into the checking account to pay the balance on the credit card account?

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    Just my two cents - my bank does just the opposite. I have an one-click option to apply for a loan to pay off my card. Guess they figured they cannot prevent it so they could profit on it.
    – Mołot
    Feb 7 at 14:31
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    @Molot for the bank (disclosure: I work at one) the loss of revenue from the tax rate downgrade is more than offset by the lower RISK of a default by the client that clearly can't pay the interest and put food on the table at the same time. A default is very expensive for the bank. That's why several offer cheaper credit to pay off CC. Sometimes, the bank only brands the card, and the profits are shared with another company. Swapping the card debt with an internal loan may not even be that much of a loss.
    – Mindwin
    Feb 7 at 15:15
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    What jurisdiction is this? 10% APR sounds outrageously high for a personal loan with a good credit rating for my jurisdiction (UK), where ~3% up to £25K is achievable. A superficial Google search suggests that similar (and certainly a lot less than 10%) is also possible in the USA. My point being that "I'd rather use my own bank, as its simple to manage the accounts all in one place" might seem less important if it means paying 2-3x more per month than you could if you use a comparison site to shop around.
    – JBentley
    Feb 7 at 17:10
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    @Mindwin In fact they'll probably just offer to increase the credit limit, with the hope that you'll do some more borrowing.
    – Barmar
    Feb 7 at 17:36
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    Once you get a loan to pay off the credit card, what's stopping you from maxing out the credit card again? If you're not attaching collateral to the loan then the bank simply stands to lose more money. Simply put, they've been "around the block" more than once.
    – MonkeyZeus
    Feb 7 at 19:24

2 Answers 2

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Does that mean the loan cannot be used to pay off debt by the same bank? What stops loan borrowers from simply transferring the cash deposited into the checking account to pay the balance on the credit card account?

As long as you're allowed to take a cash out distribution from the loan, you can definitely do that.

Sometimes they only give you a loan for explicit payoff (i.e.: they get a payoff statement from the current lender and send them a check directly), in which case they won't let you pay off their own loans.

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  • I'd expect that a loan with an explicit payoff would have more favorable terms than a loan that you can cash out, since it means you can't blow the cash on things other than paying off the other debt. Your bank may not work like that though
    – Jonathan
    Feb 7 at 8:13
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Most loans are given for a specific cause, that you have to specify on the application - it is a lot more difficult to get a loan just ‘for cash-out’. But if you can get the latter, then sure you can use it to pay off your credit cards.
The bank basically only says you won’t get a loan specifically for that cause.

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